Conducting the Examination Phase
In any performance or value-for-money audit, a challenge for the audit team is to plan and conduct audit procedures that are robust enough to allow auditors to determine whether audit criteria are met, to obtain sufficient appropriate evidence, and to conclude on the audit objective(s). Depending on the focus and approach to the audit, the selection of audit procedures related to efficiency may require special considerations.
For example, the audit team may need to be familiar with and use a variety of data collection and analysis techniques such as benchmarking, process mapping, data mining, direct observation, surveys, statistical analysis, and root cause analysis. It may also need to conduct financial analysis in order to produce estimates of potential cost savings that would result from improved efficiency.
In an audit of efficiency that emphasizes systems, the audit procedures may involve tests of controls, process mapping, document reviews, physical observation, and interviews. The auditor may also need to compare the entity’s efficiency achievement process with best practices to determine if there are weaknesses. For example, if the organization has implemented Lean practices, the auditor should compare the organization’s version of Lean with best practices for Lean implementation.
In an audit of efficiency that emphasizes results, the auditor will need to conduct audit procedures that focus on measuring efficiency and on assessing the reliability and completeness of efficiency-related information and benchmarks. This will require collecting information on relevant ratios (outputs to inputs or outcomes to inputs), the cost of inputs, and the detailed steps of selected processes. This means that the first step in many audit procedures will be to complement the information collected in the planning phase of the audit (see Knowledge of Business) in order to have a good understanding of:
- Inputs (human resources, materials, equipment, etc.) and their cost;
- Intended and actual outputs;
- Intended and actual outcomes; and
- Selected processes and their component steps.
When considering inputs, outputs and outcomes (see Figure 1), auditors should consider the “attribution” question: is there a reasonable causal relationship between the inputs and the outputs (or outcomes) of interest? Identifying this reasonable causal relationship can be especially challenging for outcomes, since public sector organizations are often working towards longer-term outcomes where various external factors may impact the final achievement of desired results. In such instances, audited organizations may only have a ‘contributory effect’ on the outcomes being sought (subject matter experts may also be of assistance with regard to the attribution question).
These contributory effects can be significant. However, the challenge of attribution will not necessarily preclude the auditor from concluding on the efficiency of the audited entity/program. In situations where the auditee’s influence over achievement of desired results has remained relatively stable over the time period under examination, auditors will also be able to assess the entity’s efficiency performance over time.