Performance auditing is an assessment of the activities of an organisation to see if the resources are being managed with due regard for economy, efficiency and effectiveness and accountability requirements are being met reasonably.
Not only is performance management clearly established in legislation in South Africa, but the promotion of efficient, economic and effective use of resources in public administration is called for in the Constitution of South Africa. The Public Finance Management Act (PFMA) and the Municipal Finance Management Act (MFMA) also requires annual reports to include the performance of the public institution against predetermined objectives.
Performance auditing, then, is an independent evaluation of the measures to ensure efficiency, economy and effectiveness; and it forms a crucial foundation of public accountability against responsibilities. When faced with competing priorities for resources, performance auditing can also assist with decisions on future funding and priorities. Where the focus of regularity auditing is on accounts and financial statements; performance auditing focuses on programmes, projects, systems or activities.
While reviewing acquisition of resources for economy, the auditor tries to ascertain whether resources have been procured in the right amount, at right place, at right time and at right cost; with reference to the primary objectives of the organisation. While determining the right amount of resources, he would see if the management laid down its needs clearly and, as far as possible, quantitatively. The assessment of needs should normally, lead to identification of requirements for which alternatives are analysed to determine minimum cost.
Efficiency is a difficult concept in most organisations. It presumes that standards of input and output are available. But in a large number of cases the standards are not available and the auditor has to work with the auditee management to determine agreed standards. The most commonly used standards, however, are planned outputs for given inputs laid down by the auditee itself. Where they are not available then other techniques are used to assess the level of efficiency.
In measuring effectiveness a distinction needs to be made between output and outcome. The output relates to the results of certain inputs within the organisation while outcome relates to the results external to the organisation. For example a certain project visualises to install a certain number of tube wells at a certain cost. The tube wells are the output of this project. But the tube wells are intended to lower the sub-soil water table by certain feet. The lowering of water-table is the outcome of the programme. Effectiveness auditing measures the outcomes of the expenditure.
Often, if there are weaknesses in the management measures put in place to ensure the economic procurement of resources and the efficient and effective use of such resources, there is an impact on the institution’s service delivery, the quality of its products and its financial position. ORCA’s extensive experience and expertise in Performance Auditing can guide you through this difficult but crucial area.