RTI, MUMBAI / CH 101 CRITICAL ISSUES IN PERFORMANCE AUDITS DAY 10 SESSION NO. 3 (THEORY) BASED ON CHAPTER 10 PERFORMANCE AUDITING GUIDELINES

RTI, MUMBAI / CH 10 1

CRITICAL ISSUES IN CRITICAL ISSUES IN PERFORMANCE AUDITSPERFORMANCE AUDITS

DAY 10

SESSION NO. 3 (THEORY)

BASED ON CHAPTER 10PERFORMANCE AUDITING GUIDELINES


Learning ObjectivesLearning Objectives

In the previous session we discussed: Mandate for performance audit Strategic planning for performance audit Annual operational plan Performance audit implementation plan Use of expert, consultant and outsourcing


Contd..Contd..

Entity consultation, cooperation and response Supervision and review Monitoring progress and periodic reports Quality assurance and quality control Duties, responsibilities and accountability Process documentation Impact evaluation of performance audits


Contd…Contd…

In this session we will discuss: Fundamental principles Audit plan and programme – detailed guidelines for

conduct of audit Audit objectives & Audit criteria Audit evidence for testing against criteria Sampling Audit findings Recommendations and follow-up procedure Publication Reporting procedures


Fundamental principles of Fundamental principles of performance auditingperformance auditing

Performance audit is an assessment of efficiency and effectiveness of the programmes, with due regard to economy;

Addresses the issues to inputs, processes, outputs (products) and outcomes (impact);

Apart from the question whether the things are being done the right way, it also addresses the question of whether the right things are being done, in other words, it also focuses on what is not being done rather than only on what is being done;


Contd…Contd… Performance audits also address the issues of equity

and ethics, which impacts one or more of the core concerns of economy, efficiency and effectiveness, which include, apart from others, integrity in preparation of performance reports;

Distinction between regularity and performance audit should always be kept in mind;

Performance audits are undertaken with the objective of improving performance of public sector programmes and; therefore; an assessment of the expected impact- qualitative and quantitative- on the programme must be made before undertaking the audit;


Contd…Contd… The subjects selected for performance audits could be a

programme, segments of a programme – including the processes, procedures and systems, an entity itself or parts of an entity etc.;

The subject of performance audits could be financial, non-financial or public interest and governance issues;

The subjects selected for performance audits should include cutting edge issues that form the core of governance and sunrise issues in the light of policy shifts;


Contd…Contd…

Pre-sense of the risks to programmes or public interest demonstrates the competence of the institution;

Performance audits can be carried out posteriori or concurrently;

Performance audits use many techniques used in programme evaluation;


Contd…Contd…

While the performance audit may and should assess the implementation of the policy through one or more programmes, the scope of audit should be limited to assessing and impact of the implementation of policy, and the policy per se should not be questioned;

Performance audit conducted in time, when there is scope for remedial measures is encouraged; and

Performance audits being knowledge-based exercise, in which conclusions emerge from interpretations, call for special skills, knowledge and competence of the audit personnel.


Audit plan and programme – detailed Audit plan and programme – detailed guidelines for conduct of auditguidelines for conduct of audit

The detailed audit implementation guidelines will consist of all relevant information and document required for complete understanding of the entity, besides the audit objective, criteria, types and sources of evidence to be gathered, audit test programme, delineation of duties and responsibilities among team members and supervisors, progress reports etc.;


Cont…Cont…

The implementation guidelines should be such as to address all issues designed in the prescribed structure.

Unless authorised by general of special order, the performance audit guideline will be approved by SAI top management.


Audit Objectives & audit criteriaAudit Objectives & audit criteria

Audit objectives will be the focus of field audit and data collection;

All audit objectives and sub-objectives will address one or more of the core audit concerns of economy, efficiency and effectiveness and the concerns addressed by each audit objective and sub-objective will be identified against each of them;


Contd…Contd…

The evidence testing will also revolve around the audit objectives; and

Audit objectives need not be limited to testing of the programme objectives. The audit objectives go much beyond the programme objectives to test the programme for economy, efficiency and effectiveness.


Audit CriteriaAudit Criteria

The audit criteria are performance measures against which the evidence is tested for arriving at the audit findings and conclusions;

For each audit objective or sub-objective there must at least one criterion, and testing on more than one criteria against the same audit objective enhances the acceptability of audit findings and makes them convincing;

The audit criteria should be acceptable to the entity;


Contd…Contd… In the event of disagreement in a few cases, it may be a

good practice to request the entity to suggest alternative criteria;

All possible sources of criteria should be consulted to arrive at the best fir;

Criteria development by or in consultation with the experts of repute assume enhance credibility and are easily acceptable;

Institutional consultancy for criteria and for other consultancy or advise in the performance audits have better credibility and acceptance;


Cont…Cont… Performance criteria prescribed in the programme or later

developed by the entity should be tested for appropriateness and unless otherwise established that they may hide underperformance of over-pitch the performance, these should be adopted in performance audits;

The performance audit need not confine to the entity established criteria, but should go beyond to establish more criteria to provide tests for all audit objectives and sub-objectives; and

The ultimate objective should be to persuade the entity to include performance criteria within each programme.


Audit evidence for testing Audit evidence for testing against criteriaagainst criteria

All data and evidence to be gathered will, as far as possible, be pre-determined with reference to each criterion, which are intrinsically linked to each audit objective or the sub-objective;

The source and location of data/ audit evidence and method of gathering them shall be determined in the audit implementation plan;

Evidence in support of each audit finding will be transparently tested on the standards of relevance, competence and sufficiency (reasonableness) in the working papers;


Contd…Contd…

The secondary evidence viz. surveys, photographs, physical inspection etc. should be corroborative and should not form the only basis of audit finding, unless accepted by the entity;

Accountant General are encouraged identify secondary/ corroborative sources of evidence and establish means for gathering them with the approval of the SAI top management; and


Contd…Contd… They may also determine approach and methodology for

physical verification in programmes in which asset verification and beneficiary survey are crucial inputs to establish the actual delivery or the output and the quality of output/delivery.

While nothing prevents physical verification by audit team, the question of credibility and acceptance should also be taken into account, since physical verification by audit team may sometimes be contested later as incorrect

Some of the methods that could be considered are joint physical inspection with attestation from both sides, survey by reputed agencies, etc.


SamplingSampling

· The audit findings should be based on objective sampling and the sampling techniques use should be disclosed;

· As far as possible, statistical sampling techniques should be used;

· Assistance of statistical adviser in the SAI headquarters may be obtained for statistical sampling; and

Adequate sample size should be selected to be able to generalise the audit findings and be able to meet the standard of sufficiency


Audit FindingAudit Finding

· Audit findings should be developed on the basis of audit tests carried out on the sample;· Audit findings should be in the context of the audit objectives and criteria;· The causes of underperformance should be determined to be able to recommend remedial measures; and· All evidence used for audit findings should be tested transparently on the standards of relevance, competence and sufficiency and the basis on which the satisfaction of fulfilling the standards is established, should be documented in the working papers.


Recommendation and Follow-up Recommendation and Follow-up procedureprocedure

· All audit reports must contain recommendations arising out of audit findings and the cause of audit findings;·As the performance audit revolves around the audit objectives, the follow-up procedure is built around the recommendations and the impact of performance audit is measured on the basis of implementation of the recommendations; and·The follow-up procedure is conducted with reference to the nominal information on the implementation of the recommendations and the quality of implementation of recommendations through a more detailed follow-up audit


PUBLICATIONPUBLICATION

· Stand-alone volume for each performance audit report· Deviation from this only with authorization; and.Performance audit reports prepared and presented during all sessions of legislature round the year as per the pre-determined schedule


Reporting procedureReporting procedure The reporting includes all types of reporting and includes discussion papers,

audit observations, field audit reports, draft performance audit report and the final report;

Same standards should be applied on all form of reporting, except that the discussion papers, audit observations and field audit reports will contain more detailed, including the details of evidence used and evidence testing;

The style guide is to be followed uniformly; Lower levels of reporting viz. discussion papers, audit observations etc.

should be written keeping the objective of next level of report and the final report in view;

The reporting should strictly in accountability-centred style by designation only, and

The prescribed structure of performance audit reports should be followed meticulously


Session SummarySession Summary

In this session we discussed: Fundamental principles Audit plan and programme – detailed guidelines for

conduct of audit Audit objectives & Audit criteria Audit evidence for testing against criteria Sampling Audit findings Recommendations and follow-up procedure Publication & Reporting procedures

Documents

RTI, MUMBAI / CH 101 CRITICAL ISSUES IN PERFORMANCE AUDITS DAY 10 SESSION NO. 3 (THEORY) BASED ON CHAPTER 10 PERFORMANCE AUDITING GUIDELINES