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INTRODUCTION TO PERFORMANCE AUDITING
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Presentation on theme: "INTRODUCTION TO PERFORMANCE

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AUDITING"— Presentation think you have liked this presentation. If you wish to
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1
INTRODUCTION TO Thank you!
PERFORMANCE AUDITING

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DAY 1
SESSION NO.3 (THEORY)
BASED ON CHAPTER 1
PERFORMANCE AUDITING GUIDELINES 71
RTI, MUMBAI / CH 1

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2
Learning Objective
In the previous session we discussed the need for separate guidelines and
structure of the New Performance auditing courseware.
Now in this session we will discuss:
1. Mandate for performance audit
2. Definition of performance auditing, 3 Es concept, Equity and Ethics
3. Specific nature of Performance Audit
4. Performance Audit and Programme evaluation
5. Common types of Programme Evaluation
6. Performance Audit Process
RTI, MUMBAI / CH 1

3
Cont… 7. Expected outcomes of performance auditing.

8. Objectives of Performance Auditing

9. Difference between Performance audit and
Regularity audit.
What performance auditing requires from the auditors.
11. Analyse the performance auditing cycle.
Importance of documentation of decisions at various
stages of the performance audits.
13.  Recognize why the impact of the performance
auditing needs to be evaluated.
RTI, MUMBAI / CH 1

4
Mandate for performance audit

Mandate derived from the Constitution as established by the C & A G’s DPC Act,
1971
Mandate for performance audit governed by sections 13, 14, 15, 16, 17, 19 and 20
of the DPC Act,
RTI, MUMBAI / CH 1

5
CAG`S DPC Act, 1971 Section 13 deals with

(a)audit of all expenditure from the Consolidated Fund of India and of each State
and of each Union territory having a Legislative Assembly.
(b) to audit of all transactions of the Union and of the States relating to
Contingency Funds and Public Accounts
RTI, MUMBAI / CH 1
 6
CAG`S DPC Act, 1971
audit of all trading, manufacturing profit and loss accounts and balance-sheets 
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and other subsidiary accounts of Union or of a State;
and in each case to report on the expenditure, transactions or accounts so
audited by him. We think you have liked this presentation. If you wish to
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CAG`S DPC Act, 1971Buttons:
Section 14 deals with the

Audit of receipts and expenditure of bodies or authorities substantially financed

from Union or State Revenues
RTI, MUMBAI / CH 1
71

8
CAG`S DPC Act, 1971 Section 15 deals with

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Functions of Comptroller and Auditor-General in the Case of Grants
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or Loans
given to other Authorities or Bodies
RTI, MUMBAI / CH 1

9
CAG`S DPC Act, 1971 Section 16 deals with the

Audit of Receipts of Union or of States which are payable into the Consolidated
Fund of India and of each State and of each Union territory having a Legislative
Assembly
RTI, MUMBAI / CH 1

10
CAG`S DPC Act, 1971 Section 17 deals with

the Audit of accounts of stores and stock kept in any office or department of the
Union or of a State.
RTI, MUMBAI / CH 1

11
CAG`S DPC Act, 1971 Section 18 deals with the authority:-

CAG shall have authority to inspect any Office of accounts under the control of
union or State. For this books and records can be called for where ever he wants.
Any information can be called for by him or his representatives.
RTI, MUMBAI / CH 1

12
CAG`S DPC Act, 1971
Section 19 deals with the Audit of Government companies and corporations
Section 19A Laying of reports in relation to accounts of Government companies
and corporation
Section 19(3) of DPC Act enables the States to request the CAG to audit their
accounts
RTI, MUMBAI / CH 1

13
CAG`S DPC Act, 1971 Section 20 deals with

Audit of accounts of certain bodies or authorities not covered in earlier sections.

Govt. shall consult the CAG for undertaking the audit.
Terms and conditions shall also be settled between Govt. and CAG.
RTI, MUMBAI / CH 1
 14
Performance auditing - Definition

Performance audit is concerned withpresentation

the audit of economy,efficiency and 
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effectiveness and embraces:
Audit of economy of administrative activities in accordance with sound
administrative principles and practices and management policies
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Audit of efficiency of utilisation of human, financial and other resources, including
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examination of information system, performance measures and monitoring
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arrangements, and procedures followed by audit entities for remedying identified
deficiencies. Buttons:
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15
Performance audit – Definition (Cont…)
71
b. Audit of the effectiveness of performance
in relation to the achievement of the
objectives of the audited entity, and audit Cancel
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of the actual impact of activities compared with
the intended impact.
Performance Audit is an independent assessment or examination of the extent to
which an entity, programme or organisation operates efficiently and effectively,
with due regard to economy
RTI, MUMBAI / CH 1

16
The components of Performance Auditing

ECONOMY
EFFICIENCY
EFFECTIVENESS
EQUITY
ETHICS
RTI, MUMBAI / CH 1

17
Economy
Economy is minimizing the cost of resources used for an activity having regard to
the appropriate quality. Economy issues focus on the cost of the inputs and
processes. Economy occurs where equal quality resources are acquired at lower
prices i.e.., spending less.
RTI, MUMBAI / CH 1

18
Example for Economy
Reduction in costs through better contracting, bulk buying, etc;
reduction in costs through economies on usage of personnel or other resources;
introduction of charges where none were previously imposed, or revision of
charges;
rationalisation of facilities;
RTI, MUMBAI / CH 1

19
Efficiency
Efficiency is the relationship between the output,in terms of goods,services or
other results and the resources used to produce them. Efficiency exists where the
use of financial , human,physical and information resources in such that output is
maximised for any given set of resources inputs,or input is minimised for any
given quantity and quality of output, I.e.spending well. resources.
RTI, MUMBAI / CH 1
 20
Example for Efficiency

greater outputs from same Download

inputs; 
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remedying duplication of effort or lack of coordination;
Were waiting times reduced, at no extra cost and with no reduction in quality of
service?
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Effectiveness Buttons:
Effectiveness is the extent to which objectives are achieved and the relationship
between the intended impact and the actual impact of an activity.
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22
Example for Effectiveness

better identification/justification of need; Cancel

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clarifying objectives and policies;
introducing better sub-objectives and targets;
better achievement of objectives by changing the nature of outputs or improved
targeting;
RTI, MUMBAI / CH 1

23
Equity
Equity in the context of programme management relates to fairness and
impartiality in use of public funds
RTI, MUMBAI / CH 1

24
Example for Equity
Are outputs/services made available to intended groups without discrimination?
Does everyone have access to the benefits due to them?
Has management acted with fairness and impartiality
RTI, MUMBAI / CH 1

25
Ethics
Ethics in managing public affairs enjoins the qualities of honesty and integrity in
personal conduct and devotion to the duty as manager of public funds. The ethics
in management of public funds and affairs extends to the accountability system
and accountability relationship for correctness and accuracy of the performance
information by the managers
RTI, MUMBAI / CH 1

26
Cont…
The concept of ‘trusteeship’ should be applied to the matters in the realm of
public affairs in the sense that the managers of public funds and affairs ought to
hold the funds and be sensitive and accountable for public good within the policy
parameters as trustees of public funds.
RTI, MUMBAI / CH 1

27
Example for Ethics
Intentional unauthorised siphoning of resources for other purpose than for which
these are provided or negligent/incorrect performance information may relate to
ethical integrity.
RTI, MUMBAI / CH 1

28
What is three plus two issues

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Audit findings on ethics and equity should be included in the performance audit
report only when the infringement of the standards of equity and ethics impacts
the performance adversely.We Thus economy,
think you haveefficiency, effectiveness,Ifequity
liked this presentation. andto
you wish
ethics are in effect three plus two issues rather than five issues. Equity and ethics
download it, please recommend it to your friends in any social
issues in performance audits add value
system. only
Share if the audit
buttons are a findings againstThank
little bit lower. theseyou!
two
standards affect one or more of the three i.e. economy, efficiency and
effectiveness. Buttons:
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29
Specific nature of Performance Audit
71
Given the size, complexity and diversity of entity operations, it is generally not
practicable to attempt to assess the overall performance of departments or
entities. Consequently, performance audits are usually directed towards specific
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functions, activities, programmes or operations of the entity.
Performance audit findings are not a random assortment of various financial and
regularity audit findings but an assessment of either the whole or the part of the
programme/subject/function/system.
RTI, MUMBAI / CH 1

30
Performance Audit and Programme Evaluation

Apart from examining the impact of outputs,

an evaluation could include issues such as whether
entity planning reflected the programme objectives,
and whether the objectives were consistent with policy.
While performance auditing does address many issues, which are dealt with in an
evaluation, it ought to
stop short of questioning the policy or embarking
on suggesting policy alternatives.
RTI, MUMBAI / CH 1

31
Performance Audit and Programme Evaluation (Cont…)

Auditing and evaluation by SAI may be

divided into the following seven categories:
Regularity audit: Are regulations complied with?
Economy audit: Do the means chosen represent
the most economical use of public funds for
the given performance?
Efficiency audit: Are the results obtained
commensurate with the resources employed?
Effectiveness audit: Are the results consistent
with the objectives of the policy?
RTI, MUMBAI / CH 1

32
Cont…
Evaluation of the consistency of the programme with the policy: Are the means
employed for policy implementation consistent with the set objectives?
Evaluation of the impact of the policy: What is the economic and social impact of
the policy?
Evaluation of the effectiveness of the policy and analysis of causality: Are the
observed results due to the policy, or are there other causes? .
RTI, MUMBAI / CH 1
 33
Common Types of Programme Evaluation

The contemporary common types of programme evaluation techniques used in 

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performance auditing are:
Process evaluation: assesses the extent to which a programme is operating as
intended. We think you have liked this presentation. If you wish to
Outcome evaluation: assesses the extent
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Impact evaluation: assesses the net effect of a programme by comparing
programme outcomes withButtons:
an estimate of what would have happened in the
absence of the rogramme.
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71
34
Cont…
Cost-benefit and cost-effectiveness evaluation are analyses that compare a
programme’s outputs or outcomes with the costs (resources expended)
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produce them.
RTI, MUMBAI / CH 1

35
Expected Outcome of Performance Audits

Performance Audits promote accountability, insights and transparency in

governance and deliver credible, objective and reliable information on
implementation of policy objectives and contributes to good governance. It is an
important responsibility of the SAI management to ensure that through each
performance audit one or more of these objectives are met.
RTI, MUMBAI / CH 1

36
Cont…
The extent of positive impact on the policies and programmes through
performance audit is the most important measure of its quality.
It is a good practice for SAI management to evaluate the real impact on entity
policies and programmes attributed to performance audits.
RTI, MUMBAI / CH 1

37
Performance audit process

The first stage in performance auditing is strategic planning for performance

audits, which requires the development and maintenance of information on the
entity that will assist in identifying potential areas for Performance Audit.
Potential topics can then be analysed to form audit strategy documents.
Once a subject has been selected, performance audit is initiated by developing a
plan with details for the conduct of the audit.
RTI, MUMBAI / CH 1

38
Cont… The implementation stage of a performance audit involves:

Development and execution of an audit programme;

Collection and documentation of sufficient, relevant
and reliable evidence, including quantitative and qualitative analysis;
Development of audit findings, conclusions and
recommendations; and
Development of discussion papers/draft field audit reports, and confirmation of
audit findings at exit conference.
RTI, MUMBAI / CH 1
 39
Objectives of Performance Audit

To improve public sector Download

administration and accountability by adding value 
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through an effective programme of performance audits.
To assist the people’s representatives in exercising effective legislative control and
oversight over the policy objectives
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youtheir
haveimplementation. :
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40 Buttons:

Cont… Quality of information and advice available to the

government for the formulation of policy

The existence and effectiveness of administrative machinery in place to inform
the government whether programme objectives and targets have been
determined with a view to fulfilling policy objectives;
71
Whether, and to what extent, stated programme objectives have been met;       
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41
Cont…
The economy, efficiency, effectiveness, equity and ethics of the means used to
implement a programme/activity;
The intended and unintended direct and indirect other impacts of
programmes/activities; for example, the environmental impact of government
activity, etc.; and
Compliance to applicable laws and regulations in the context of the performance
audit objectives.
RTI, MUMBAI / CH 1

42
Cont…
Performance not to confine to what has been done but to examine what has not
been done to meet policy objectives
RTI, MUMBAI / CH 1

43
Difference between Regularity Audit and Performance Audit

Scope
Regularity audit
Generally covers a financial period (annual, biennium, etc.);
Coverage is for the whole of the entity for the period; and
Time bound- audit to be completed by a stipulated time.
Performance audit
Covers the subject/programme over a period of time;
Coverage is selective; and
Focused only on a part of the entity’s activities/programme.
RTI, MUMBAI / CH 1

44
Difference Objectives (Cont…)

Regularity Audit
Attestation (opinion on) of financial accountability;
Existence and control for safeguarding of assets;
Evaluation of financial records;
Audit of financial systems;
Audit of internal control for safeguarding assets and completeness and accuracy
of accounts;
Audit of propriety of administrative decisions;
Limited to financial matters; and
Performance Audit
Audit of economy, efficiency and effectiveness;
Assessment of compliance to applicable laws and regulations required in the
context of audit objectives; 
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Audit of internal controls that ensures economy, efficiency and effectiveness,
ensuring adherence to management policies and timely and reliable financial and
management information;
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Extends to non-financial / governance subjects also; and
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Difference Evidence (Cont…)

Regularity Audit
Test for assuring compliance
to laws, regulations and rules. 71
Financial statements
per se, accounting
documents, etc.;
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Transaction documents
Conclusive nature of
evidence;
Performance Audit
Conclusions related to audit objectives.
Variety of forms of evidence
Quite often qualitative in nature;
Persuasive rather than conclusive;
Evidence related to pre-determined audit objectives; and
Materiality guided more by
RTI, MUMBAI / CH 1

46
Difference Academic Base (Cont…)

Regularity Audit
Materiality by amount;
and
Budgetary assumptions
and appropriation authorisations, etc
Generally accounting knowledge.
Performance Audit
the nature or by context rather than amount alone, etc.
Always knowledge-based of laws, social sciences, economics, development
studies, public affairs, science, and technology, etc.
RTI, MUMBAI / CH 1

47
Difference Approach and methodology (Cont…)

Regularity Audit
More or less standar-
dised manual generally
forms the entire basis.
Performance Audit
Varies widely from subject to subject; Manual generally
serves as basis framework.
RTI, MUMBAI / CH 1

48
Difference Assessment criteria (Cont…)

Regularity Audit
Standardised (suitable to all audits) with little scope for subjectivity.
Performance Audit
Widely varying and subjective with ample scope for interpretations; assessment
criteria support the audit objectives, which are unique to the subject of
performance audit.
RTI, MUMBAI / CH 1 
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49
Difference Report (Cont…)

We think you have liked this presentation. If you wish to

Regularity Audit
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Opinion on the financial statements;
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Generally opinion on financial statements in standardised format;
Opinion on compliance to laws, regulations and rules;
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Related to specific financial periods- there is a periodicity of reporting; and
Specific requirement and expectations.
Performance Audit
Report / conclusions on economy and efficiency with which the resources 71 are
acquired and used and the effectiveness with which the objectives are met;
Generally separate publications on each subject of performance audits.
Wide-ranging in nature, open to interpretations and subjective judgement.
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50
Difference Overlap (Cont…)

Regularity Audit
Financial audits do not generally include the elements of performance audits.
Performance Audit
There can be overlap
in the sense that the performance audit may encompass techniques
methodologies applied
to financial audit.
RTI, MUMBAI / CH 1

51
Requirements of Performance Audit

In-depth knowledge of various laws , social sciences, economics, development

studies, public affairs, science, and technology, etc.
Performance audit to be taken up as an mission and to be planned and
implemented by a dedicated team led by an officer of the middle management
level
RTI, MUMBAI / CH 1

52
Requirements of Performance Audit (Cont…)

Performance auditor to maintain

Integrity
Objectivity and fairness
Confidentiality
Technical standards
It may be desirable that the performance auditor adopts an attitude of
professional scepticism throughout the audit, recognising that circumstances may
exist that could cause the information relating to performance to be materially
mis­stated
RTI, MUMBAI / CH 1

53
RTI, MUMBAI / CH 1

54
Audit Management Process Documentation

The process documentation will consist

documentation of performance audit management
from strategic planning to follow up procedure .
The process documentations of conscious decisions
will apply, among others, to selection of evidence
gathering techniques and sources of evidence to 
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fulfill the audit objectives, evidence analysis techniques,efforts for continuous
dialogue
with the entity, assessment of skill and knowledge
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Impact Evaluation of Performance Audit

Internal evaluation of the Impact of performance audits, at the close of each71

year,
on governance in general, and on the entity’s policies and programme
management, in particular will help to attain a 3600 feedback for the
performance Audit endeavour.
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RTI, MUMBAI / CH 1

56
Session Summary In this session we discussed:

Mandate for performance audit

Definition of performance auditing, 3 Es concept, Equity and Ethics
Specific nature of Performance Audit
Performance Audit and Programme evaluation
Common types of Programme Evaluation
Performance Audit Process
Expected outcomes of performance auditing.
Objectives of Performance Auditing
Difference between Performance auditing and Financial auditing.
What performance auditing requires from the auditors.
Analyse the performance auditing cycle.
Importance of documentation of decisions at various stages of the performance
audits.
 Recognize why the impact of the performance auditing needs to be evaluated.
RTI, MUMBAI / CH 1

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A N INTRODUCTION TO
PERFORMANCE AUDITING Dr.
Surendra Kumar IA&AS.

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