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PARIMAL PAUL Director

OFFFCE OF THE THE DIRECTOR GENERAL OF AUDIT CENTRAL , KOLKATA. SAI INDIA. Performance Audit Guideline 2014. PARIMAL PAUL Director. PERFORMANCE AUDIT. CONTENTS. Introduction Mandate and General Principles for performance audits Strategic audit planning and Selection of audit topics

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PARIMAL PAUL Director

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  1. OFFFCE OF THE THE DIRECTOR GENERAL OF AUDIT CENTRAL , KOLKATA SAI INDIA Performance Audit Guideline 2014 PARIMAL PAUL Director PERFORMANCE AUDIT

  2. CONTENTS • Introduction • Mandate and General Principles for performance audits • Strategic audit planning and Selection of audit topics • Planning individual performance audits • Implementing the performance audits • Evidence and Documentation • The Reporting process • Follow-up of performance audits PERFORMANCE AUDIT

  3. CHAPTER-I: INTRODUCTION • Performance Audit guidelines provide the best practices that the officers and the staff of Department must follow in planning, implementation, reporting, observing follow up processes and obtaining quality assurance in performance audits. They outline principles, objectives, approach, methodology, techniques and procedures for conducting performance audits. PERFORMANCE AUDIT

  4. CHAPTER – I : INTRODUCTION • These guidelines are based on the existing guidelines of C&AG of India and International Standards of Supreme Audit Institutions- (ISSAI) 100, 300 and 3000 and ASOSAI Performance Auditing Guidelines. These Guidelines contain comprehensive implementation of instructions and replace the Performance Auditing Guidelines, 2004. PERFORMANCE AUDIT

  5. SPECIAL FEATURES OF REVISED GUIDELINES 2014 • Strong conceptual foundation of the principles of Performance Auditing and emphasize the need to organically link the strategic planning at the headquarters level with the planning process at the field audit level. • The guidelines elucidate different audit approaches that can be adopted PERFORMANCE AUDIT

  6. SPECIAL FEATURES OF REVISED GUIDELINES 2014 • Audit Design Matrix that is to be used and constantly reviewed throughout the period of audit and linked to the Audit Findings Matrix has been prescribed. • The forceful articulation and mandating of a stringent documentation process to be observed. PERFORMANCE AUDIT

  7. SPECIAL FEATURES OF REVISED GUIDELINES 2014 • It focuses on the need for continuous interaction with the audited entities to ensure balanced reporting. • Need for following up the Performance Audit reports to bring about improvement in governance has been highlighted. • To make the guidelines more concise and focused PERFORMANCE AUDIT

  8. Performance Auditing C& AG’s Auditing Standard 4.9 defines the scope of Audit as under: “The term 'Audit' includes financial audit, regularity audit and performance audit”. “Performance audit is an independent assessment or examination of the extent to which an organization, programme or scheme operates Economically, Efficiently and Effectively.” Regulation 68 of Regulations on Audit and Accounts, 2007 PERFORMANCE AUDIT

  9. Special features of Performance Auditing • While financial auditing tends to apply fixed standards, performance audit is more flexible in its choice of subjects, audit objects, methods and opinions. • Performance audit is not a regular audit with formalized opinions. • It does not have its roots in private auditing. PERFORMANCE AUDIT

  10. Special features of Performance Auditing • It is an independent examination made on a non-recurring basis. • It is by nature wide-ranging and open to judgments and interpretations • The special feature of performance auditing is due to the variety and complexity of questions relating to its work PERFORMANCE AUDIT

  11. Idea form the basis of Performance Audit Certain ideas form the basis of performance auditing: • Firstly, one starting point is that it is important to assess the economy, efficiency, and effectiveness in all government activities and, for that purpose, an audit is needed, which examines and evaluate such matters and which may contribute to better government spending, better public services and better public accountability and management. PERFORMANCE AUDIT

  12. Idea form the basis of Performance Audit(Contd.) • Secondly, it is important to have reliable and independent information. An examiner is needed who represents the public interest; who can think and act independently in order to show and question the current situation. PERFORMANCE AUDIT

  13. Idea form the basis of Performance Audit(Contd.) • Finally, an overview and insights into government activities and the ability to influence and improve its performance are important. A competent examiner is needed who can fulfill this role, who will promote incentives for learning and change and improved conditions for decision-making. PERFORMANCE AUDIT

  14. BENEFITS OF PERFORMANCE AUDIT Performance audit seeks to provide new information, analysis or insights and where appropriate recommends for improvement. It delivers new information, knowledge or value by: • providing new analytical insights ( broader or deeper analysis or new perspectives); PERFORMANCE AUDIT

  15. BENEFITS OF PERFORMANCE AUDIT • making existing information more accessible to various stakeholders; • providing independent or authoritative view or conclusion based on audit evidence; • providing recommendations based on analysis of audit findings PERFORMANCE AUDIT

  16. Key principles of Performance Auditing Performance audit is focussed in good performance of Public Administration by achieving the principles of ECONOMY, EFFICIENCY and EFFECTIVENESS Economy Efficiency Effectiveness PERFORMANCE AUDIT

  17. ECONOMY Economy Minimizing the cost of resources used by acquiring them in due time, appropriate quantity and quality and at the best price • The principle of Economy is keeping the cost low. • Economy issues focus on the cost of the inputs and processes. Economy occurs where equal quality resources are acquired at lower prices. PERFORMANCE AUDIT

  18. ECONOMY (Contd.) • It is minimising the cost of resources used having regard to the appropriatequality; • It is “Spending less”; and • Question to be asked by the auditor is “Do the means selected represent the most or at least a reasonable economical use of public funds.” PERFORMANCE AUDIT

  19. ECONOMY (Contd.) • It requires that resources used by the audited entity for its activities shall be made available in due time, appropriate quantity and quality and at the best price. In other words it means procurement at the lowest cost. • The main issue to be examined here that the means chosen represent the most or at least a reasonable economical use of public funds PERFORMANCE AUDIT

  20. Examples of Economy • Procurement of materials through Open Tender/Limited Tender • Comparing the purchase rates on last occasion after allowing normal escalation with the rate offered by the vendor • Negotiation with the vendor for allowing discount on the quoted rates • Procuring within the validity period of the quoted rate etc. PERFORMANCE AUDIT

  21. EFFICIENCY Efficiency The relationship between resources employed and outputs delivered in terms of quantity, quality and timing. • The principle of EFFICIENCY is getting the most from available resources. • It is concerned with the best relationship between resources employed, conditions given and results achieved in terms of quantity, quality and timing of outputs and/or achievements. PERFORMANCE AUDIT

  22. EFFICIENCY (Contd.) • It is the relationship between the quality and quantity of goods and services yielded and the cost of resources used to produce them; • It exists if the output is maximisedfor a given set of resource inputs or input is minimised for any given quality and quantity of output. • It is “spending well” PERFORMANCE AUDIT

  23. EFFICIENCY (Contd.) • Audit conclusion on efficiency may be based on comparison, standards, best practices. • The main issue to be examined here is whether the resources have been put to optimal or satisfactory use or whether the same or similar results in terms of quality or turnaround time could have been achieved with fewer resources. PERFORMANCE AUDIT

  24. EFFICIENCY (Contd.) • Auditing efficiency embraces aspects such as whether: • Human, financial and other resources are efficiently used; • Public sector programmes, entities and activities are efficiently managed; • Services are delivered in a timely manner; and • The objectives of public sector programmes are met cost-effectively. PERFORMANCE AUDIT

  25. Examples of Efficiency • Greater outputs from same inputs; • Remedying duplication of effort or lack of coordination; • Were waiting times reduced, at no extra cost and with no reduction in quality of service? PERFORMANCE AUDIT

  26. Effectiveness Effectiveness Meeting the objectives set and achieving the intended results. • The principle of Effectiveness is meeting the objectives set and achieving the stipulated objectives. • Effectiveness is essentially a goal attainment concept. It addresses the issue of whether the programme/activity has achieved its objectives. PERFORMANCE AUDIT

  27. EFFECTIVENESS (Contd.) • It is the relationship between intended impact and actual impact of an activity; • It is “Spending wisely”; • It measures the outcome which may require long term rather than short term assessment; and PERFORMANCE AUDIT

  28. EFFECTIVENESS (Contd.) • Question to be asked by the auditor “Are the impacts really the results of policy/programmes rather than other circumstances” • It measures the outcome which may require long term rather than short term assessment; and PERFORMANCE AUDIT

  29. EFFECTIVENESS (Contd.) • In auditing effectiveness performance audit may for instance : • Assess whether the objectives of and the means provided(legal,financial,etc.) for a new or ongoing public sector programme are proper, consistent, suitable or relevant to the policy ; • Assess and establish with evidence whether the observation direct or indirect social and economic impacts of a policy are due to the policy or to other causes; PERFORMANCE AUDIT

  30. EFFECTIVENESS (Contd.) • Identify factors inhibiting satisfactory performance or goal fulfilment; • Assess whether the programme complements, duplicates, overlaps or counteracts other related programmes; • Assess the adequacy of the management control system for measuring, monitoring and reporting a programme’s effectiveness; and • Identify ways of making programmes work more effectively PERFORMANCE AUDIT

  31. Example forEffectiveness • Better identification/justification of need; • Clarifying objectives and policies; • Introducing better sub-objectives and targets; • Better achievement of objectives by changing the nature of outputs or improved targeting. PERFORMANCE AUDIT

  32. What are the basic Questions in Performance Audit? Basic questions in Performance Auditing are: • Are the right things been done; • If so, are things been done in the right way; and • If not, what are the causes? PERFORMANCE AUDIT

  33. Contd. The perspectives and the entities to be audited vary, i.e. individual departments as well as government programmes and undertakings may be audited. Some of the main differences between performance and financial auditing are summarised below: PERFORMANCE AUDIT

  34. Performance auditing v/s Financial auditing PERFORMANCE AUDIT

  35. Performance auditing v/s Financial auditing PERFORMANCE AUDIT

  36. Compliance audit v/s Performance audit PERFORMANCE AUDIT

  37. Compliance audit v/s Performance audit PERFORMANCE AUDIT

  38. Compliance audit v/s Performance audit PERFORMANCE AUDIT

  39. Compliance audit v/s Performance audit PERFORMANCE AUDIT

  40. Benefits of Performance Audit • External benefits Performance auditing has important functions to fulfill, both in relation to the general public, the legislature, the government and the entities that are audited. • Internal benefits Performance auditing enhances cultural diversity, creativity and learning in the SAI, leading the auditors to concentrate on relevant social, political and economic issues. PERFORMANCE AUDIT

  41. Objectives of Performance Audit • The main objective of performance auditing is to constructively promote economical, effective and efficient governance. • It also contributes to accountability and transparency • Performance auditing focuses on areas in which it can add value for citizens and which have the greatest potential for improvement. PERFORMANCE AUDIT

  42. Objectives of Performance Audit (Contd.) • It provides constructive incentives for the responsible parties to take appropriate action. • Performance auditing promotes transparency by affording parliament, taxpayers, those targeted by government policies, media and other stakeholders an insight into the management and outcomes of different government activities. PERFORMANCE AUDIT

  43. Elements of Performance Audit Public Sector audits have certain basic elements: • The three parties • The Auditor • The responsible Party • Intended Users • Subject Matter • Audit Criteria PERFORMANCE AUDIT

  44. General outlay of Performance Auditing Guidelines (Contd.) These guidelines are presented in a sequence as the process of Performance Audit. The Department has to deal with a variety of subjects of Performance Audits and conduct audit in diverse entity environments. Besides, different structures for audit management exist in the Department for the Union Government (civil,. PERFORMANCE AUDIT

  45. General outlay of Performance Auditing Guidelines defence, railways, communication, revenue and commercial audits) and the audit of State Governments. It may, therefore, be necessary to adjust the actual process of planning, field audits and consolidation of the performance audits in the context of the entity environment and composition of audit offices. PERFORMANCE AUDIT

  46. Structure of Performance Audit PERFORMANCE AUDIT

  47. Structure of Performance Audit PERFORMANCE AUDIT

  48. 2. Mandate and General Principles of Performance Audit Mandate: • The audit mandate of the Department is derived from the Constitution of India. Article 151 of the Constitution of India provides that the reports of the Comptroller and Auditor General of India relating to the accounts of the Union or a State government shall be submitted to the President or the Governor of the State respectively, who shall cause them to be laid before each House of Parliament/ Legislature of the State. PERFORMANCE AUDIT

  49. 2. Mandate and General Principles (Contd.) • The statutory position is established under the Comptroller and Auditor General's (Duties, Powers and Conditions of Service), Act 1971. The mandate of C&AG of India for performance audits is described in Sections 13, 14, 15, 16, 17, 19 and 20 read with Section 23 of this Act. PERFORMANCE AUDIT

  50. 2. Mandate and General Principles (Contd.) • Chapter 7 of the Regulations on Audit and Accounts, 2007 provides the specific guidance on this subject. Regulation 68 defines Performance Audit as an independent assessment or examination of the extent to which an organization, programme or scheme operates economically, efficiently and effectively. PERFORMANCE AUDIT

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