Performance Audits
The company must allow employees to review the results
of the appraisals. Human resources departments must
play a key role in the development and implementation of
an effective performance appraisal system.
See Also Human Resource Management; Management;
Motivation; Standard-Based Work Performance
BIBLIOGRAPHY
Aguinis, H. (2013). Performance management (3rd ed.). Boston,
MA: Pearson.
Bacal, R. (2012). Manager’s guide to performance management
(2nd ed.). New York, NY: McGraw-Hill.
Bernardin, H. J. (2013). Human resource management: An ­experiential
approach (6th ed.). New York, NY: McGraw-Hill/Irwin.
Cardy, R. L., & Leonard, B. (2011). Performance management:
Concepts, skills, and exercises (2nd ed.). Armonk, NY: M.E.
Sharpe.
Cascio, W. F. , & Aguinis, H. (2011). Applied psychology in
human resource management (7th ed.). Upper Saddle River,
NJ: Prentice Hall.
Grote, D. (2011). How to be good at performance appraisals:
Simple, effective, done right. Boston, MA: Harvard Business
Review Press.
Harbour, J. L. (2013). The performance mapping and measurement
handbook. Boca Raton, FL: Taylor and Francis.
Mosley, E. (2013). The crowdsourced performance review: How
to use the power of social recognition to transform employee
­performance. New York, NY: McGraw-Hill.
Schneier, C. E., & Beatty, R. W. (1979, August). Developing
behaviorally anchored rating scales (BARS). The Personnel
Administrator, 59–68.
Wright, P. (2013, June). Some practical thoughts on annual
­performance management process. People and Strategy, 54+.
Lee Wonsick Lee
Performance Audits
Performance audits, the public version of operational
audits, are conducted to determine if an entity’s opera-
tions, programs, or projects are functioning effectively and
efficiently to achieve goals established. All levels of public
administration in the United States, from municipalities to
the federal agencies, undergo performance audits. Because
all levels of government in the United States have some fed-
eral funding, the professional standards for performance
audits established by the U.S. Government Accountability
Office (GAO) are required for auditors who perform such
engagements. Government auditing standards include the
definition of performance audits as “audits that provide
findings or conclusions based on an evaluation of suffi-
cient, appropriate evidence against criteria” (GAO, 2011).
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Accountability is the key motivation for performance
audit engagements. The performance audit, therefore, is
perceived to be a valuable means of determining if goals
have been achieved, as well as valuable in identifying what
is needed to improve program operations.
The specific objectives of such audits, as noted in the
GAO standards, are varied. Among objectives are those
relating to program effectiveness, economy and efficiency
in the use of resources, internal control, extent of compli-
ance with legal requirements and policies, and prospective
analyses.
Nature of Professional
Guidance Provided
The GAO professional standards for performance audits
are categorized as general, fieldwork, and reporting. The
general standards established by the GAO apply to not
only performance audits but also to financial and attesta-
tion engagements. There are fieldwork and reporting stan-
dards, however, specifically for performance audits. The
requirements of the standards include these definitions.
Unconditional requirements: Auditors and audit
organizations must comply with an unconditional
requirement in all cases where such requirement is
relevant. GAGAS [generally accepted government
auditing standards] uses the word must to indicate
an unconditional requirement.
Presumptively mandatory requirements:
Auditors and audit organizations must comply
with a presumptively mandatory requirement in
all cases where such a requirement is relevant. . . .
GAGAS uses the word should to indicate a pre-
sumptively mandatory requirement. (GAO, 2011,
pp. 26–27)
General standards. The general standards that guide gov-
ernment auditors, as well as other independent auditors,
stated in summary style, are:
• Independence: The auditor and his/her firm must be
free, in both fact and appearance, from all types of
impairments of independence.
• Professional judgment: The auditor should use pro-
fessional judgment in planning and performing all
audits and in reporting the results.
• Competence: Those individuals assigned to the audit
must collectively possess adequate professional
competence for the tasks required to complete the
engagement.
• Quality control and assurance: Audits must be per-
formed by auditors whose organizations maintain an
internal quality control system and have an external
peer review at least once every three years.

As noted, these general standards are the same for all
types of audits that are GAO engagements. These general
standards impose responsibility on both the audit entity
and the individual auditors to ensure that those who par-
ticipate in such audits are independent in fact and appear-
ance, able to make good judgments, and qualified for
engagement tasks. Furthermore, it is expected that the
entity that employs auditors for such audits maintains
oversight of the work performed to be assured that the
quality of performance is adequate and the tasks have
been completed.
Fieldwork standards. The fieldwork standards deal with
planning; supervising staff; collecting evidence that is suf-
ficient, competent, and relevant; and preparing adequate
audit documentation.
• Planning: All aspects of the work of the audit must
be adequately planned. Although planning for a
performance audit is a continuous process, initial
planning is important. Decisions to be made initially
include determining audit objectives, which state
operationally what is intended to be accomplished.
Audit objectives, for example, may be the cost-
effectiveness of program performance or the extent
to which specific organizational goals are being
achieved. The scope, which is established by deter-
mining the boundaries for the engagement, should
reflect the audit objectives. The methodology com-
prises what is to be done to gather and analyze data
to achieve the objectives.
• Supervision: During an audit, staff must be ­properly
supervised. The tasks of supervision primarily
include providing appropriate guidance to staff
members, maintaining alertness to significant prob-
lems that arise, reviewing the work while it is in
progress, and providing useful on-the-job training.
• Evidence: The major task of the auditors’ work relates
to gathering evidence that is sufficient, competent,
and relevant to the data for meeting the objectives
of the audit. Ultimately, it is the evidence that sup-
ports the judgments and conclusions relevant in
the report. Auditors, to meet the objectives of their
audits, are able to use different types of evidence.
Commonly used evidence sources include: direct
observation of individuals, properties, and events;
documents, such as memoranda, charts, and reports;
inquiries, interviews, and questionnaires; and ana-
lytical evidence that includes computations and
disaggregating information for detailed assessment.
Auditors must make a professional judgment about
the sufficiency of their evidence in relation to the
objectives earlier identified. There are no quantified
requirements for the amount of evidence.
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Performance Audits
• Audit documentation: Auditors are expected to prepare
and maintain sufficient documentation to provide a
complete account of the planning, conducting, and
reporting related to the audit. Everything from plan-
ning to conclusions must be documented. The super-
vision, as well as other reviewers of documentation,
must determine if the work performed is satisfactory
or needs to be extended. Quality control at the firm,
which is confirmed through periodic outside peer
reviews, is primarily based on audit documentation.
A framework for the assessment of audit documenta-
tion is the standards established by the GAO.
Reporting. There are three reporting standards, commu-
nicating results, content, and the issuing and distribution
of the report.
• Communicating results: An audit report is to be
appropriate for its intended recipient and is to be
provided in writing or in some other retrievable form.
Because the government has responsibility for main-
taining public accountability, all audit reports must
be retrievable, and, therefore, available to the citizens.
• Content: A report of a performance audit is expected
to include the objectives, scope, and methodology, as
well as the audit results, with details of conclusions,
recommendations, and acknowledgment of adher-
ence to GAGAS. Because a draft of the report is to
be shared with management of the agency under
audit, the final report includes the responses of those
who reviewed the draft and the outcome of the
issues, if any, that needed to be resolved. Views of
the responsible persons in the audited agency are to
be reported. If there is any privileged or confidential
information that has been omitted, a disclosure of
this matter is to be included in the report.
• Issuance and distribution of the report: The reports
should be distributed to all appropriate responsible
persons in the audited agency and oversight bodies
or organizations involved with the audits, as well
as other officials with legal oversight authority and
others authorized to receive the reports. If a public
accounting firm performs the audit and is respon-
sible for the distribution, it should reach agreement
with the audit contracting party about who will
receive the report and the steps being taken to make
the report available to the public.
The Value of Performance
Audits
Performance audits are potentially valuable both to the
agencies for whom such audits are undertaken as well as
for the citizens of the governmental unit.
599
Personal Financial Planning
Value to agency audited. As noted earlier, a draft of an
audit team’s report is presented to officials responsible for
management. Such a draft is discussed with management
and revised accordingly before it is issued to the appropri-
ate parties. Auditors are expected to return to the agency
after giving management sufficient time to implement
any recommendations contained in the audit report. The
purpose of this follow-up visit is to assess the degree to
which management has addressed the findings contained
in the audit report.
Value to citizens. Reports of governmental activity are
generally available to the citizens, except in infrequent
instances in which confidentiality is judged necessary
because of security or other sensitive matters. Citizens
seek accountability for tax revenues. Objective results of
performance audits are reliable evidence for enlighten-
ing citizens who are asked to vote on legislation related to
increasing taxes, for example.
Performance audits are posted at states’ websites, and
are accessible through state government offices (keying
“state of ” followed by a state’s name at a search engine
is sufficient for reaching governmental offices). Georgia,
Oklahoma, and Washington are examples of states with
auditors who post performance audits that are clearly
identified as performance audits.
The U.S. GAO does not identify performance audits
in the title of such reports or make specific reference to
the term performance audit. Searching for examples of
such audits, therefore, at the GAO website is not direct; it
is necessary to read the titles and make a judgment. Most
GAO reports are considered to be performance audits,
even though explicit identification as such is not included
in the report. In fiscal year 2012 the GAO issued more
than 650 reports. There is generally a statement that the
work was done in accordance with the publication Gov-
ernment Auditing Standards. Inasmuch as Government
Auditing Standards includes attestation engagements that
are described as “an examination, review, or agreed-upon
procedures,” there is some uncertainty in determining if a
report is a performance audit report.
A Parallel Audit in Business
Business has a parallel type of audit to the audit herein
discussed. Outside of governmental units, however, such
an audit is usually called an operational audit. Depart-
ments of internal audit in companies are generally respon-
sible for operational audits. The guidance for such audits
is similar, to a considerable extent, to that for the perfor-
mance audit. Guidance for such operational audits is pro-
vided by the Institute of Internal Auditors.
The results of such nongovernmental audits, how-
ever, are not shared with the public. The results are shared
with the unit of the business undergoing the operational
audit and possibly with top management and the board of
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directors. The requirements for disclosure of internal control
weaknesses related to financial reporting in annual financial
reports that became effective as of December 15, 2005, does
mean that some matters that might be operational weak-
nesses related to financial reporting are disclosed.
See Also Auditing; Government Auditing Standards;
Government Financial Reporting; Human Resource
Management; Institute of Internal Auditors
BIBLIOGRAPHY
Aikins, S. K. (2011). An examination of government internal
audits’ role in improving financial performance. Public
Finance and Management, 11(4), 306.
Campbell, M. (2003, Fall). Restoring trust in government:
A cost-effective approach to the cry for “accountability.”
The Journal for Quality and Participation, 26(3), 44.
Dennis, L. M. (2009). Guide to fraud in governmental and
­not-for-profit environments (Rev. ed.). New York, NY:
­American Institute of Certified Public Accountants.
U.S. Government Accountability Office. Comptroller
­General of the United States (2011, December). Govern-
ment auditing standards (Yellow Book). Washington, DC:
Author. Retrieved October 29, 2013, from http://gao.gov/
assets/590/587281.pdf
Mary Ellen Oliverio
Personal Financial
Planning
An important investment individuals can make is in
planning their use of the financial resources they have.
Although there are skilled financial advisers in all types
of financial services institutions, individuals should have
some knowledge about their own affairs. Individuals who
take time to learn about money matters will receive a rich
reward. Gaining dividends in understanding in the long
run will help individuals maintain their financial position
at a level that is in line with their expectations.
Creating a Financial Plan
The first step in creating a financial plan is to identify per-
sonal and family financial goals. Goals are based on what is
most important to an individual. Short-term goals (up to a
year) are related to what is wanted soon, such as household
appliances or a vacation abroad, whereas long-term goals
identify what is wanted later in life, such as a home, educa-
tion for children, or sufficient retirement income.
These short- and long-term goals are the basis for
establishing priorities, including an emergency fund as
the first item. Then the estimated cost of each goal and
the target date to reach it should be determined.