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Practice Guide to Auditing Efficiency

Measures to Improve Efficiency

The general public expects governments to move toward greater efficiency. To meet this expectation, public sector organizations have implemented measures and have taken specific actions to maintain or improve efficiency. These vary widely in terms of how explicit and direct the emphasis on efficiency is. These measures and actions include, for example:

A description is provided below for each of these categories.

In practice, the auditor may encounter any number of different situations in the entity or program being audited, or considered for audit. These situations may affect the decision to select - or not - the entity or program for audit. In addition, if an entity is selected for audit, the presence of efficiency improvement measures would likely affect the detailed design of the audit, including the audit focusobjectivescriteria, and use of benchmarking. (For more details, see “Assessing the Level of Emphasis Placed on Efficiency in an Entity”).

Spending and Efficiency Reviews

Some spending reviews have been cost-cutting programs that have reduced programs, services, or service delivery levels. Other reviews, sometimes known as “efficiency reviews,” have put emphasis on increasing the efficiency of government programs and service delivery. The goal of such efficiency reviews is usually to identify and implement a defined level of cash-releasing efficiencies every year over a given period of time in order to meet financial targets while not adversely impacting the delivery of front-line services.

In Canada, the federal government initiated in 2007 a continuous strategic review of existing spending based on a four-year cycle. While this review process is not exclusively focused on efficiency, it is aligned with the government’s commitment to deliver services that are efficient and effective. The first cycle (2007–2010) has presented opportunities to change the way certain programs and services are delivered, to make them more efficient and effective.

Elsewhere, the governments of Northern Ireland and Scotland have implemented efficiency programs in recent years. The Northern Ireland Audit Office (2012) and Audit Scotland (2010) have published audit reports on these programs. More information on efficiency programs audits can also be found in the our Focus on Efficiency publication.

Recognized Improvement Frameworks

There are many recognized “frameworks” to achieve and improve efficiency in the public sector. Many of these were originally developed in the private sector, where they are now used by well-managed organizations and promoted by management consultants. These frameworks have since been adapted to the public sector environment.

Each framework is based on a significant body of research and the methodologies can be complex. Some common frameworks are listed below, along with selected reference sources. Note that in many cases, the methodologies are not exclusively directed at efficiency, but also focus on quality and effectiveness.

  • Lean — Lean is a production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination. The core idea of Lean is to maximize customer value while minimizing waste. (Reference)
  • Six Sigma — Six Sigma is a disciplined, data-driven approach and methodology for eliminating errors and minimizing variability in any process, from manufacturing of products to provision of services. The goal of Six Sigma is to improve the quality of process outputs. (Reference)
  • Total quality management — Total quality management is an integrative philosophy of management for continuously improving the quality of products and processes. The philosophy is derived from W. Edwards Deming’s 14 points on quality management, a set of management practices to help companies increase their quality and productivity. (Reference)
  • Balanced scorecard — The balanced scorecard is a strategic planning and management system used to align business activities with the organization’s vision and strategy and to monitor organizational performance against strategic goals. By tracking regular scores in specific areas, organizations can identify those that are less efficient and take actions to improve performance. (Reference)
  • ISO standards — The International Organization for Standardization (ISO) is the world’s largest developer of voluntary international standards. International standards give specifications for products, services, and good practice, helping to make organizations more efficient and effective. (Reference)

In addition to these general frameworks, public sector organizations can also use tailored tools to support efficiency in their specific lines of business or sector. For example, health care organizations use various resource utilization systems, such as workload measurement and bed management systems, to support efficiency.


Benchmarking is the process of comparing an organization’s business processes and performance metrics to leading practices in its sector or best practices from other sectors. Items typically measured are quality, time, and cost.

Benchmarking can also relate to the process of comparing an organization’s current performance with its performance in the past (sometimes also referred to as a baseline comparison).

The role of benchmarking in achieving efficiency is particularly important as it provides an organization’s management with objective information on where its strengths and weaknesses are in terms of efficiency. Equipped with this information, an organization can identify priority areas for improvement and implement corrective measures to improve its overall efficiency performance.

Depending on the particular process to be benchmarked, the data can come from internal sources (such as the cost to process a similar transaction in another part of government), external sources within the jurisdiction (such as the cost to maintain a bus in another municipality), or other external sources (such as Canadian Institute for Health Information data on average length of stay in hospital for a particular diagnosis). However, it can be challenging for both management and auditors to obtain relevant, reliable, and comparable benchmarking data.

Innovative Service Delivery Models

Innovation is the application of new solutions to meet new requirements or existing needs. The introduction of new management approaches, new (or “alternative”) service delivery models, and new partnership arrangements are all ways in which innovation can be harnessed to improve the efficiency of public sector programs, activities, and services.

Public-private partnerships (P3s), shared services, integrated service delivery, and online services are all examples of innovative approaches increasingly used by governments to deliver projects and services more efficiently and effectively.

Our 2010 publication Innovation, Risk & Control provides additional information on the role of innovation in the public sector.

Day-to-day Management Activities, Systems and Internal Controls

While efficiency in the public sector can be achieved through targeted initiatives as described above, it is perhaps most commonly pursued through the general, or day-to-day, management systems and functions found in every organization. In practice, this means that organizations must have strong systems and internal controls in place to ensure that their resources are allocated, used, and managed efficiently. The next section of this Practice Guide describes various management activities that can foster efficiency.

“Internal control” has been defined by COSO (the Committee of Sponsoring Organizations of the Treadway Commission in the United States) as “a process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.”

The Canadian Institute of Chartered Accountants’ Criteria of Control Board (COCO) and COSO have each developed frameworks (in 1995 and 1992, respectively—COSO was updated in 2013) for control that help public sector organizations achieve their operational, reporting, and compliance objectives. The foundation of an organizational structure to support efficiency is set out in these control best practices. Public sector auditors generally stress the importance of control systems and practices and focus much of their work in this area.

In practice, there is a relationship between controls, risk and efficiency. For example, efficiencies can be achieved by eliminating unnecessary controls (e.g. duplicate controls or controls in low risk areas) and enhancing useful controls. Similarly, if an organization implements controls without considering risk, it may end up devoting too many of its resources to controls—reducing its overall efficiency at the same time. Conversely, overemphasis on efficiency can lead to an organization taking on too much risk and experiencing an unhealthy reduction in control.

Ultimately, the right balance between risk and control depends on appropriate risk analysis and on an organization’s tolerance for risk.