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Practice Guide to Auditing Efficiency

Efficiency in the Public Sector

Many factors influence how efficient a public sector organization is. These factors include the degree to which it has successfully implemented good governance and controls for key management practices, the nature of the services it provides, and the market forces (or other forces) the organization must respond to.

In the private sector, efficiency reviews (not necessarily audits) are common because of the importance of efficiency in increasing bottom-line profitability, which is often the overriding corporate goal.

In the public sector, there is no equivalent overriding goal. Rather, public sector organizations have multiple goals related to political and social objectives, such as growing the economy, achieving the fiscal plan, reducing poverty, maintaining the accessibility of services, and protecting the environment. Some of these objectives may conflict with increasing efficiency.

In fact, the public sector environment is characterized by several unique circumstances that may impede the achievement of efficiency. For example, in the public sector:

  • Market forces do not play the same role as in the private sector.
  • The obligation to implement certain government policies and regulations may limit the opportunities for achieving efficiency.
  • The election cycle and term limits may make it difficult to launch and sustain initiatives to improve efficiency in the long term.
  • The major revenue source is taxes, which, unlike user fees, are not directly related to services. As a result, citizens may feel less inclined to provide feedback and suggestions on how to improve the efficiency of specific services.