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Practice Guide to Auditing Efficiency

Should an Audit of Efficiency Also Cover Economy and Effectiveness?

Economy, efficiency, and effectiveness are highly interrelated concepts. In the audit planning phase, the auditor must decide whether the audit should be limited to efficiency or whether it should also include economy and/or effectiveness.

GOOD PRACTICE: While acquiring knowledge of business during the planning phase of an audit, the auditor should assess and document the elements of economy, efficiency, and effectiveness in relation to the program or activity being audited. It is particularly important to determine what the desired outcomes are, whether the audited entity is measuring and reporting on those outcomes, and whether they are being achieved. This will help the auditor to answer the question, “Are the desired outcomes being achieved efficiently?”.

Audits of efficiency can have one or more objectives related only to efficiency, or they can have multiple objectives that also include economy and effectiveness. The appropriate choice depends in part on the audit office’s mandate, priorities, and resources, as well as on the availability of information on the auditee’s performance.

In practice, the relationships among the 3 Es may make the decisions on audit focus quite difficult. For example, it may be challenging to deal with one E while ignoring the other two. Also, it is not uncommon for issues initially thought to be economy or effectiveness to actually be efficiency issues, or vice versa.

Beyond overcoming these difficulties, auditors will have to consider three important questions:

  • Would reporting solely on efficiency meet the need of the audit report’s audience (including parliamentarians, audit committees, and decision makers), which may also be interested in effectiveness and economy?
  • Could reporting solely on efficiency be done without being criticized for missing other important aspects of a given topic?
  • If conducting a stand-alone efficiency audit, would it be possible to communicate the audit findings in such a way as to make it clear that the report does not conclude on effectiveness?

A review of recent audits shows that some have focused solely on efficiency, while others have combined efficiency with economy and/or effectiveness. For example, the Auditor General of Canada’s 2008 audit Economy and Efficiency of Services—Correctional Service Canada looked at both economy and efficiency issues.

The Office of the Auditor General for Scotland’s 2012 audit of Cardiology Services included an effectiveness objective in addition to an efficiency objective:

“We looked at how effectively the NHS [National Health Service] in Scotland manages Cardiology services, how much is spent and whether patients across Scotland have the same access to services.

The audit also assessed whether there is scope to improve the efficiency of Cardiology services by comparing activity across Scotland and identifying areas of good practice where efficiencies have been made.”

The National Audit Office in the United Kingdom has performed a number of audits where the sole focus was efficiency. Two examples are the 2011 audit of the Office of Rail Regulation: Regulating Network Rail’s Efficiency, and the 2011 audit of The BBC’s Efficiency Programme.