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Practice Guide to Auditing Efficiency


Conducting the Examination Phase

Selecting Audit Procedures

The challenge in this phase of the audit process is to ensure that audit procedures are robust enough to enable the auditor to determine whether the audit criteria are met and to conclude on the audit objectives. Also, the auditor should be selecting audit procedures to increase audit impact. Each audit is unique and there is no substitute for professional judgment when making key decisions on audit procedures.

Table 7 includes examples of audit procedures that could be used to audit the efficiency of a regulatory inspection and enforcement function.Note that some procedures apply only to audits with a systems or results emphasis, while others apply to both categories.

Table 7 - Sample Audit Procedures for Auditing Efficiency of Regulatory Inspection and Enforcement Function

Audit Emphasis

Audit Procedure

Related Management Activity

Systems or results

Performance measures and targets

Review reported results to determine if there are indications of inefficiency. Compare with benchmarks or standards.

Performance monitoring and reporting

Systems or results

Inspector utilization

Review inspector utilization statistics. Calculate cost savings that would result if all inspectors achieved the same utilization rate as the average of the top 25 percent.


Review historic information on numbers of inspectors and number of inspections performed. How has efficiency of inspectors changed over time?


Review information related to how inspectors’ time is utilized. Calculate percentage of inspectors’ availability that is spent on major tasks such as performing inspections, preparing file documentation and reports, administration, travel, and training. Are relative proportions in accordance with management expectations and benchmarks?

Operational planning, project and operations management, performance monitoring and reporting

Systems or results

Time taken to perform an inspection

Compare time taken to perform similar inspections against relevant standard (if it exists), compare the performance of inspectors, and compare performance with other jurisdictions. Calculate cost savings if all inspections were performed according to a time standard or another suitable benchmark.

Commitment and tone from the top, project and operations management, performance monitoring and reporting

Systems or results

Inspection report: timeliness and efficiency

Compare time taken to complete an inspection report with standard (if it exists), compare the performance of inspectors, and compare overall performance with other jurisdictions. Determine whether appropriate tools are used to support the report writing process (for example, an electronic report writing system that enables the inspector to select from pre-established paragraphs). Calculate cost savings and/or time savings if all reports were prepared according to a time standard or another suitable benchmark.

Commitment and tone from the top, project and operations management, performance monitoring and reporting

Systems

Inspector training

Interview a sample of inspectors to determine approach to training. Review policies and training records. Is there indication of insufficient training or that training does not promote efficiency?

Operational planning

Systems

File documentation

Review sample of inspection files to determine whether policies and standards are followed. Is documentation well-organized and easily accessible? Are there feasible ways of making the documentation process more efficient ? (In other words, are there ways of using less costly options to maintain the same quality of output?)

Project and operations management, IT systems, continuous improvement and innovation

Systems or results

Penalties for non-compliance

Review a sample of files to determine whether there are undue delays between completion of inspection and enforcement of penalties. Determine the ratio of penalties to inspections. Is there any indication that resources are not being targeted to high-risk areas? Is there any indication that the process of enforcing penalties is inefficient?

Commitment and tone from the top, operational planning, project and operations management, performance monitoring and reporting

Systems or results

Administrative overhead

Benchmark administration costs with those of similar inspection functions. Administration costs could include administration staff, office space, and other components of overhead. Calculate the savings that would results if performance met benchmarks.

Operational planning, project and operations management, performance monitoring and reporting

Systems or results

Travel costs

Compare travel costs among inspectors and investigate anomalies. Are there indications that inspectors are not located optimally?

Operational planning, project and operations management, performance monitoring and reporting

Systems or results

Potential innovations to increase efficiency

Conduct research on options and discuss feasibility.

Performance monitoring and reporting, continuous improvement and innovation

Considerations Relating to Reliance on Information Produced by the Auditee

During the examination phase, the question of whether it is appropriate for the auditor to rely on information produced by an entity’s management systems will likely arise. This is especially true for audits that emphasize the results of the inspection and enforcement function, or an entity’s performance monitoring and reporting systems.

In order to rely on information produced by an entity’s management, auditing standards require auditors to conduct sufficient, appropriate audit procedures to reduce the risk that information produced by management is incomplete or inaccurate. These audit procedures may include reviews of internal controls and systems, analytical procedures, and/or reliance on the work of other auditors or specialists. The requirement to audit management information systems and reports may consume significant audit resources. Auditors need to thoroughly plan and conduct procedures to support a conclusion that the risk of relying on the information produced by an entity’s management is low.