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Practice Guide to Auditing Efficiency

Sample Criteria with a Systems Emphasis

Criteria in Table 5 are taken from the general criteria presented in the Practice Guide that can be used as part of a systems audit and are supplemented with criteria specific to the efficiency of the inspection and enforcement function. (Additions to the general criteria in the Practice Guide are shown in Table 5 in italics.) Auditors may also choose to add criteria for the four support functions that contribute to the achievement of efficiency.

An appropriate set of criteria should be selected based on specific audit objectives. For example, if the audit objective is number 1 in Table 3 (normative objective focusing on systems for achieving efficiency), then criteria related to all seven management activities in Table 5 would likely be relevant. However, if the audit objective is number 2 in Table 3 (normative objective focusing on systems for measuring and reporting efficiency), then criteria relating to a subset of management activities would likely be selected (for example, commitment and tone from the top, IT systems, performance monitoring and reporting, and continuous improvement and innovation). In this case, the remaining management activities (strategic planning, operational planning, and project and operations management) would be less relevant.

Similarly, for objective number 3 in Table 3 (normative objective focusing on implementation of recognized efficiency improvement framework), the criteria would need to relate specifically to the selected framework, and good practices for its implementation and the systems criteria listed in Table 5 would play only a minor role.

Click on any of the following seven management activities to view examples of criteria:

  1. Commitment and tone from the top
  2. Strategic planning
  3. Operational planning
  4. Project and operations management
  5. IT systems
  6. Performance monitoring and reporting
  7. Continuous improvement and innovation

Table 5 - Examples of Criteria for Audits of Efficiency of Regulatory Inspection and Enforcement Function with a Systems Emphasis

Management Activity

Criteria for Audits with a Systems Emphasis

1. Commitment and tone from the top

Efficiency as a priority. Senior management has emphasized that efficiency is a priority for the inspection and enforcement function and that achieving it is a shared responsibility of all managers and staff.

Clear expectations. Senior management has clearly established and communicated expected results in terms of efficiency, complete with targets and indicators for the inspection and enforcement activities.

Established baselines. The organization has established clear baselines for the cost, quality, and level of service of each of its main inspection and enforcement activities.

Policies. Clear guidance is provided in the regulator’s operational procedures on the steps that must be taken to assess the risks posed by non-compliance and to determine whether immediate regulatory action is needed to mitigate the most serious risks.

Clear definition of need for action. Procedures are clearly defined, and staff trained in their application, to facilitate the taking of timely, targeted, and lawful regulatory action when non-compliance is found.

2. Strategic planning

Strategic planning. The organization has a strategic planning process that identifies organizational inefficiencies and prioritizes efficiency improvement initiatives for the inspection and enforcement function.

Risk assessment. The organization has assessed the risks and potential consequences of maintaining inspection and enforcement operations identified as inefficient.

Assessing opportunities. The organization continually identifies and evaluates opportunities to improve efficiency of the inspection and enforcement function.

Compliance monitoring strategy. The compliance monitoring strategy (inspection strategy) is risk based.

  • The monitoring strategy is documented.
  • The strategy identifies the types and frequency of monitoring activities, and who will conduct them, taking into consideration available resources and an acceptable level of residual risk.

Review of the monitoring strategy. Regulatory risks are systematically reviewed. When new or emerging risks are identified, the monitoring strategy is reviewed and adjusted, as necessary, so that regulatory outcomes can be achieved within defined residual risk parameters.

3. Operational planning

Operational planning. The organization’s systems and practices to allocate financial, human, and material resources to its inspection and enforcement projects and operations are designed to increase operational efficiency.

Service levels. The organization has adopted inspection and enforcement service level standards that are used by operational planners to identify, budget for, and allocate required inputs.

Input costs. The organization identifies and analyzes the input costs for all its majorinspection and enforcement services and programs.

Unit costs. The organization calculates the unit cost of delivering its main inspection and enforcement services and tracks how the unit costs change over time.

Cost variation. The organization has a clear understanding of how costs change in response to changing levels of inspection and enforcement activity.

Comparable financial information. The organization continually compiles relevant financial information on the inspection and enforcement function and produces information that is comparable over time.

Personnel allocation. The organization’s systems and practices to allocate its personnel to its various inspection and enforcement services or business units are designed to increase efficiency.

Allocation. Human resources are allocated based on priority to the most important regulatory risk areas.

Qualified personnel. Inspection and enforcement operations are designed and carried out by qualified personnel with clear roles and responsibilities.

Accountability. Roles, responsibilities, authority, and accountability for efficiency matters ininspection and enforcement are clearly defined, attributed, and communicated.

4. Project and operations management

Due regard to efficiency. The organization’s project and operations management controls, operational systems, and work processes demonstrate due regard to efficiency.

Operating systems and procedures. The organization’s service delivery operations are designed and carried out using efficient systems, processes, and procedures.

Utilization of production capacity. The organization optimizes the available production capacity, facilities, equipment, and employees to produce targeted volumes of goods and services.

Scheduling. Monitoring (inspection) activities are scheduled and implemented in accordance with the monitoring strategy.

Monitoring of progress. Progress on the inspection schedule's implementation is monitored and reported to senior management. Where slippage occurs, management endorses an action plan to remedy the slippage.

Timely decisions. Regulatory decisions on an entity's (or individual’s) level of compliance are made in a timely manner so that corrective actions can be taken rapidly in cases of non-compliance.

5. Information technology (IT) systems

IT systems. The organization periodically assesses opportunities to use IT technologies to improve the efficiency of its activities and services.

Documentation policies. Guidance is provided to decision makers on the information that must be compiled, retained, and stored in support of a regulatory decision.

Information retrieval. Guidance is provided on how to prepare and assemble documentation so that, in the event of an enquiry about a decision, information retrieval costs are minimized.

6. Performance monitoring and reporting

Performance monitoring. The organization continually monitors the performance of its main activities and services using reliable indicators of efficiency.

Quality and level of service monitoring. The organization continually monitors the quality and level of service achieved for each of the main inspection services it delivers.

Benchmarking. The organization regularly benchmarks the main services it delivers in order to assess their relative efficiency and identify areas for improvement.

Reporting on efficiency initiatives. The organization periodically reports on progress against its efficiency objectives and initiatives.

  • The reports include relevant, timely, reliable, and complete information on efficiency achievements.
  • The reports include information on the efficiency gains that have been achieved from individual projects and on how these gains have improved the services delivered by the organization.

Reporting efficiency savings. In reporting efficiency savings, the organization:

  • Reports consistently over time, using valid and reliable measures and indicators.
  • Compares current values against baseline data.
  • Explains how efficiency savings are affecting cost, quality, and level of service, to show the full impact of changes.
  • Is transparent about the upfront investments and recurrent costs incurred in delivering efficiency.

7. Continuous improvement and innovation

Improving existing methods of operations. The organization continually assesses the feasibility of streamlining its systems and procedures, optimizing the allocation of its resources, and eliminating duplication and waste.

Innovation. The organization periodically identifies and assesses innovative ideas for improving the efficiency of its key activities and services.

Service delivery alternatives. The organization periodically identifies and assesses the merits of alternative service delivery methods and models that may increase its efficiency.

Efficiency through collaboration. The organization periodically assesses the merit and feasibility of increasing efficiency through new or improved collaborative arrangements (such as pooling resources, removing duplication, and sharing services particularly with similar organizations within the government or public sector).

Continuous improvement process. The organization has implemented a continuous improvement process to review and improve its service delivery systems and practices.

Source: Many of these criteria were adapted from the Office of the Auditor General of Canada’s Auditing of Efficiency (1995), the Northern Ireland Audit Office’s Improving Public Sector Efficiency: Good Practice Checklist for Public Bodies (2010), the Australian National Audit Office’s Administering Regulation–Better Practice Guide (2007), as well as from recent audits of efficiency.