The Value for Money Audit Process Session 1.

Handout 1.3-A
What is Value for Money (VFM) -- A discussion starter

Time: 15 minutes

Required:

Based on the passage below,

1. Define “Value for Money”

2. What are the aspects to be considered while deciding whether value for money has
been derived from any given set of activities?

Value for money audit is commonly referred to as VFM audit. The term “VFM audit” has
two parts, namely, “VFM” and “audit”. Therefore, in order to understand what is VFM
audit, we need to understand both the parts. In other words, we need to understand what
is “value for money” and also what is “audit”. As practicing auditors, we experientially
know what is “audit”. So here we will only consider what is “value for money”. In this
connection, consider the following:

As prudent, responsible adults, we usually desire to spend our hard earned money wisely.
So when we visit a shop to purchase any item, we mentally assess whether the value or
worth of the item considered for purchase is more than, or at least equivalent to, the
amount of money being asked for it by the seller. If our assessment of the worth or value
of the item is lower than the amount of money asked by the seller, then we may either
negotiate with the seller to reduce the price of the item or decide not to buy the item.

Similarly, assume you have decided to invest a significant part of your savings in the
construction of the house of your dreams. In this case too, you would generally be
concerned whether your investment was worth the effort and money spent. You would
perhaps conclude that your investment derived value for money if the following
conditions were satisfied:

Handout 1.3-A 09/19/21 1

The Value for Money Audit Process Session 1.3

 the raw materials (cement, sand, steel, etc) and labour were procured economically,
that is, at the cheapest possible cost, subject to acceptable quality;

 The materials and labour were utilised with the greatest possible efficiency, that is,
the maximum output was obtained from the given inputs;

 The work was done effectively, that is, the house was completed on time and as per
specifications.

Handout 1.3-A 09/19/21 2