Performance Audit

Unleashing the power of superior management and performance

With the February 2009 budget speech once again emphasising that efficient and effective utilisation of resources by the public sector should be a priority, the relevance of the performance audit has never been more important.

Performance audits offer management invaluable insights into their organisation’s operations by assessing how successfully objectives are being met. Theses observations in turn enable management to refine systems and further improve performance.

Definition

A performance audit is an independent evaluation of the measures implemented by management to ensure the efficient, effective and economic use of resources.

A performance audit differs from the other audit functions that public sector organisations must already perform each year:

• The external or statutory audit performed in accordance with relevant auditing and accounting standards
• The internal audit which is control and risk-focused
• The audit of performance information which is a statutory obligation of the Auditor-General, looking at performance against predetermined objectives.

Benefits of a performance audit

The performance audit is highly relevant at this time to public sector entities and government departments, which are increasingly mandated to achieve more efficient levels of service delivery. A performance audit creates a better understanding of the challenges that an entity is facing. It assesses the organisation as it is presently and analyses how best to move forward in achieving its goals.

Improving organisational performance

One of the key qualities of a performance audit is its flexibility. The audit scope can vary, focusing on financial and/or non-financial information – and it is customised to suit the needs of that entity. It can review the whole organisation; a particular division; a service line or function, such as human resources, that cuts across the entire operation; or a single issue that can involve several separate organisations.

Performance audits are not governed by the rigid standards and frameworks governing statutory audits. The audit methodology is tailored to suit the unique circumstances of each audit according to its objectives – with the overriding aim being to objectively and systematically assess programmes, functions and activities to help officials improve their use of scarce resources. In essence, a performance audit contributes to ensuring that the right things are done in the best way and that maximum value is obtained for every rand spent by the organisation in delivering its services.

A tool to increase efficiency

Performance audits aim to improve accountability and support good governance. In its assessment of how resources are being used, a performance audit would highlight areas where improved service delivery is required; identify potential cost savings and services that can be reduced or eliminated and analyse inefficient gaps or overlaps in programmes or services.

Policy and performance

What performance auditing will not do is to question an organisation’s policy. The formulation of policy remains the mandate of government at all levels. Rather, a performance audit would examine policy-making measures, the effects of policy and how well policy objectives are being met. For example: have policy goals and objectives been set, are they clearly defined and approved at the appropriate level by the appropriate authority; are supporting policies and procedures aligned with higher level policy; and are policy assumptions based on appropriate motivations and relevant and reliable information?

Legal imperative

Performance auditing is not a new concept in South Africa. With its origins in the Canadian public sector, it was first introduced into South African legislation in 1975. The Auditor-General first initiated performance audits in 1986.

Parliamentary and treasury legislation in South Africa strongly supports the implementation of performance audits in government – the Constitution, the Public Finance Management Act, the Municipal Finance Management Act, the Municipal Systems Act, the Public Audit Act, among others. All these statutes place great responsibility on all public sector officials to make more economical, efficient, effective and transparent use of resources.

The right team for the job

Performance audit findings can have a profound impact on an organisation and its employees. With such a great responsibility, the independent team conducting a performance audit must be equipped with high-level and diverse skills to ensure that it is properly planned and executed. As there are no predefined standards or guidelines that dictate how a performance audit should be carried out, the audit process is more subjective, reinforcing the need to have knowledgeable senior staff carrying out the assignment and providing audit conclusions that are clearly and credibly supported.

Why PricewaterhouseCoopers

PricewaterhouseCoopers’ (PwC) unique performance audit service gives clients the opportunity to refine systems and unlock greater value within their operations while enhancing the functionality of their performance management practices.

As the leading provider of financial services in the public sector, both in South Africa and globally, the firm brings an enviable track record and unmatched blend of local, national and international experience, knowledge and skills to maximise the outcomes of every assignment we undertake.