Value for money audit

EMAC CPA TRAINERS, 2007Sako MayrickVALUE FOR MONEY AUDIT

APT Financial ConsultantsSako Mayrick

APT Financial ConsultantsSako MayrickVALUE FOR MONEY AUDIT-VFMAVFMA is a broad based audit approach with a focus on efficiency and economy of operations and effective achievement of objectives.It aims at Reviewing and reporting on accountability and responsibility relationship


APT Financial ConsultantsSako MayrickVALUE FOR MONEY AUDIT-VFMAVFMA is a broad based audit approach with a focus on efficiency and economy of operations and effective achievement of objectives.It aims at Reviewing and reporting on accountability and responsibility relationshipExamining underlying activities and operating and ICS employed by management in fulfilling fiduciary responsibilities to users


APT Financial ConsultantsSako MayrickVALUE FOR MONEY AUDIT-VFMAIt aims at Answering the question as to why money has been used purpose or reasons to justify expenditurefor whom money has been used- value received as measured by utility or satisfaction enjoyed by a specified user


APT Financial ConsultantsSako MayrickVALUE FOR MONEY AUDIT-VFMAIt aims at To address the issues between management and users (owners who are not clearly identifiable) of public (common) service or goodShowing the relationship between the government and the electorate who are represented by the parliament


APT Financial ConsultantsSako MayrickVFMA- KEY TERMSAUDIT is a superimposed accountability Vs responsibility relationship carried out to establish whether the government has complied with parliamentary approval of budget and that the audit report is supported by true and fair underlying information.


APT Financial ConsultantsSako MayrickVFMA- KEY TERMSValue for money can simply be described as getting the best possible combination of services from the least resources i.e. to maximize the benefits available at the lowest cost. It is generally taken to mean the pursuit of economy, efficiency and effectiveness.Economy is a measure of inputs to achieve a certain serviceEffectiveness is a measure of outputs e.g. services and facilitiesEfficiency is the optimum of economy and effectives i.e. the measure of


APT Financial ConsultantsSako MayrickVFMA- KEY TERMSAccountability 3EsEconomy EfficiencyEffectiveness


APT Financial ConsultantsSako MayrickVFMA OBJECTIVESAssessing whether the management of an entity has developed appropriate system and procedures to achieve VFM i.e. 3Es of expenditure of public fundsAssessing the extent to which the related execution of budget is effective in meeting public satisfaction


APT Financial ConsultantsSako MayrickSCOPE OF AUDITIt covers attesting of both financial and non-financial informationAssessing the actual performanceConsidering both qualitative and quantitative aspects of issue on hand


APT Financial ConsultantsSako MayrickSCOPE OF AUDITIt coversInput financial, human, material and managementMethodology administration and governanceOutput- quality and quantity of benefits enjoyed


APT Financial ConsultantsSako MayrickAUDIT REQUIREMENTSIt requires use of relatively large resources of audit and the auditor has to possess a multitude of skills relevant to auditIt requires integration of various specialized skills, from different professions or authorities


APT Financial ConsultantsSako MayrickAUDIT REQUIREMENTSThe resource persons such as accountants, engineers, economist, statisticians, management specialist, EDP specialist, lawyers, social scientists


APT Financial ConsultantsSako MayrickAUDIT REQUIREMENTSMembers of audit team who are not trained accountants requires initial exposure on the use of audit tools such as audit programs, gathering and documenting audit evidence, conducting interview


APT Financial ConsultantsSako MayrickAUDIT REQUIREMENTSMost accountants and auditors are not necessarily trained VFM specialists.Therefore, the team must be carefully selected. The formation of the team is both challenging and rewarding


APT Financial ConsultantsSako MayrickAUDIT REQUIREMENTSEach member of the term is made to learn new skill to the extent the job can be done, thus promoting knowledge, improving communication and enhancing credibility and usefulness of audit reports


APT Financial ConsultantsSako MayrickAUDIT WORKThe audit work involves

PlanningExecutionReporting


APT Financial ConsultantsSako MayrickVFMA - PLANNINGDetermine the scope of audit and timingDefine the objectives, criteria and methodologyDefine deployment of resources to ensure that all important transactions and activities and operating systems are covered by the audit


APT Financial ConsultantsSako MayrickVFM - EXECUTIONCollection, testing and analysizing appropriate audit evidenceQualitative and quantitative characteristics of audit evidence based on audit objectivesTesting and evaluating existing IC; identifying effects of variances from pre-determined benchmarks


APT Financial ConsultantsSako MayrickVFM EXECUTION-ANALYSISStudy the 3Es for input (money and resources) used in predictionStudy the 3E of outputStudy any planned change


APT Financial ConsultantsSako MayrickMAIN OBJECTIVE OF VFMAThe objective of VFM is to provide assurance that financial human and physical resources entrusted to the government by the parliament, and to the operating officers by the government are being managed in due regard to 3E


APT Financial ConsultantsSako MayrickVFMA- ADVANTANGESImproves accountability processProvides a means for measuring the extent to which corrective action has been implemented ( parliament)A broad systematic reviews of all significant activities systems and controls provides information on their adequacy and suitabilitySuggestion on improvement should promote the management of business and hence improve substandard processes


APT Financial ConsultantsSako MayrickVFMA IN PUBLIC AND PRIVATE SECTORThe difference arises on grounds of Legal basisPurpose of audit ( public good/ facility and profitability issues)Applicability post audit reviews


APT Financial ConsultantsSako MayrickVFMA KEY ISSUESEconomy means keeping cost lowThe lowest/cost/falling amount of resources deployed to realize rising outputInvolves evaluation , comparison, assessment of the administrative activities in accordance with sound administrative principles, practices and management policies


APT Financial ConsultantsSako MayrickVFMA KEY ISSUESEconomy indicatorsCost consciousness in decision makingConservative management due to implication of decisionsPoor quality of output due to low quality of inputSuspension/delay in implementation of decision due to rise in market prices


APT Financial ConsultantsSako MayrickVFMA KEY ISSUESEffectiveness achieving the stipulated aims/objectivesThe achievement of goals and objectives irrespective of how much resources were deployed


APT Financial ConsultantsSako MayrickVFMA KEY ISSUESEffectiveness IndicatorsExcessive waste of undesired output/goods ( abnormal losses)Excessive spending of financial resources in a given periodManagement becoming too aggressiveExistence of idle capacity ( holding hammer to kill a fly which is not there)Existence of parallel operations/duplicate procedures


APT Financial ConsultantsSako MayrickVFMA KEY ISSUESEfficiency making the most available resourcesIncrease in value/benefit, output, satisfaction at minimum costIt involves evaluation of the utilization of human, financial and other resources, including evaluation of IS, performance measure, monitoring arrangements and the procedures followed in remedying deficiencies in operations


APT Financial ConsultantsSako MayrickVFMA KEY ISSUESEfficiency IndicatorsRealization of savings by cutting costsLuke warm management style, people are eager to learn, there is a willingness to accept ideas from othersDeliberate measures to check undesirable bureaucracySound and adequate system of evaluation and monitoringActivities are planned and resources are allocated on timeQualified staff with (voluntary) high motivation to work harder


APT Financial ConsultantsSako MayrickVFMA - PLANNINGPlanning comprises of Overview stageSurvey stage


APT Financial ConsultantsSako MayrickVFMA- PLANNING- OVERVIEWIt consists of an audit team for Gaining basic understanding of the entityPlanning surveyActivities of an entityGoals of an entityProductsFinancial and other resources


APT Financial ConsultantsSako MayrickVFMA- PLANNING- OVERVIEWMajor matters for review areMinutes of meetings of various committeeLegislation, regulations and publicationsInternal and external guidelines to managersOrganisation structure and objectivesAppropriate personnel to contactProgress on recommendations from previous audit/reports


APT Financial ConsultantsSako MayrickVFMA- PLANNING- OVERVIEWAudit proceduresIdentify lines of audit inquiryIdentify sources of audit criteria fro the areas to be examined in survey stage Outline the survey project and prepare a plan for conduct of surveyA survey pal serves also as a basis for allocating staff of appropriate skills and for preparation of survey time budget.


APT Financial ConsultantsSako MayrickVFMA PLANNING SURVEY OBJECTIVEExplore in efficient manner potentially significant lines of audit inquiry identified during overview stageExpand on an initial knowledgeUnderstanding of accountability relationship and key management activities, system and control


APT Financial ConsultantsSako MayrickVFMA PLANNING SURVEY Source of informationObservation of working environmentStudy of internal and external evaluation groupsInterviews with managers of audited organizationInternal and published communication of the audited organisation


APT Financial ConsultantsSako MayrickVFMA PLANNING SURVEY Appropriate audit criteriaIncludes issues to be identified and discussed with members of audited organisationQualities Provide a means for managers to develop or compare their own management proceduresConstitute a basis for senior managers to evaluate their systems and procedures


APT Financial ConsultantsSako MayrickVFMA PLANNING SURVEY Qualities Benchmark for assessing management of financial, human and physical resources


APT Financial ConsultantsSako MayrickVFMA PLANNING SURVEY Assessment of controlsStudy of controls held to ensureNeeds of users are metPrescribed standards, policies and practices are adhered toOperations are carried out economically and efficientlyReporting is appropriate, accurate, complete and timely


APT Financial ConsultantsSako MayrickVFMA PLANNING SURVEY ControlsControlsDesigned to appear to Function properlyPoor designed and poorlyfunctioningDesirable controls butNon existent


APT Financial ConsultantsSako MayrickVFMA PLANNING SURVEY Primary assessment objectiveDetermining what appears to be significant and may be of a nature should be reportedDetermining the nature, extent and timing of further auditing procedures to substantiate the underlying hypothesis for each matter of potential significance


APT Financial ConsultantsSako MayrickVFMA PLANNING SURVEY OUTLINE OF AUDIT PLANIt is the final stage of survey stageIts purposeDefine the overall audit scope in terms of audit objectives and projects to address those matters that require attentionIdentify resources requirements, including special skills neededEstablish overall audit and project time budget, milestone and control points and deadlines


APT Financial ConsultantsSako MayrickVFMA EXECUTION STAGEInvolvesConducting testsEvaluating controlsCollecting sufficient and reliable evidence


APT Financial ConsultantsSako MayrickVFMA EXECUTION STAGESteps Preparing detailed audit planSelecting and preparing detailed audit programConducting tests and evaluating controlsConsidering causes and effectsDeveloping audit findings, conclusion and recommendations


APT Financial ConsultantsSako MayrickVFMA EXECUTION STAGESteps Develop basis of recommendationsState of artCircumstances that influence the causeAlternative courses for remedial actionPlausibility and cost effectiveness


APT Financial ConsultantsSako MayrickVFMA REPORTING STAGEIt involvesDiscussing the reports with senior management of the audited organisationReporting to the board of directors or parliament as the case may beDiscussing draft reports with the management of audited organisation


APT Financial ConsultantsSako MayrickVFMA REPORTING STAGEFactors to consider in preparing the reportsFacts should be clearly distinguished from opinionsFindings, conclusions and any related recommendations should be presented logicallySource of evidence collected to support the findings and conclusion should be identifiedDifferences of opinion between the auditor and management of audited organisation should be recognized


APT Financial ConsultantsSako MayrickVFMA REPORTING STAGEContent of the reportIntroductionBackground information about the entity ( e.g. objectives, organisation, types of revenues and expenditures; environment)Audit scopeSummary of audit observationsObservations and recommendationsSummary of recommendations and management comments


APT Financial ConsultantsSako MayrickVFMA PROBLEMSDifficulties to assess effectiveness because of the problems of valuing outputs on a comparable basis e.g. output of fire brigade can be measured by the rise of call out to attend the brazeDifficulties of identifying objectives of some organisations e.g. NGO, NPOEffectiveness might be difficult to define, measure or may even conflict


APT Financial ConsultantsSako MayrickVFMA PROBLEMSThere can be emphasis for VFMA and cost control rather than insisting on achieving more future benefits and valueDifficulties of identifying equivalent measure to ROCE in not for profit organisation


APT Financial ConsultantsSako MayrickVFMA PROBLEMSThe auditor must understand clearly the operations of the clients he/she is investigating with shortage of auditors with necessary skills, qualifications and competence and with the meagre audit resources available, the VFMA audit may fail to achieve the desired objectives.


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Value for money audit