Page 204 - DCOM509_ADVANCED_AUDITING

Unit 11: Introduction to Special and Efficiency Audit

 Potential efficiency issues can be found in all government programs, activities, or Notes
operations related to the delivery of goods or services to internal or external clients, as
well as in regulatory, enforcement, and revenue collection operations. Efficiency issues
are most likely to be found in labour or capital-intensive operations that consume
significant amounts of resources. Materiality, risk significance, sensitivity, and the potential
for improvement are some of the factors considered in selecting efficiency issues for
examination.
 The concept of efficiency applies to all types of operations, even though some may have
outputs that are not uniform and are consequently more difficult to measure against
consistent standards. In operations with difficult-to-measure outputs, the assessment of
efficiency focuses on controls, operational processes, and work methods used to achieve
efficiency.

!

Caution In determining the scope of an audit of efficiency, auditors should consider all key
factors influencing the relationship between goods and services produced and the resources
used to produce them.
 A results-oriented audit approach should be followed wherever possible, because it can
usually accomplish the audit objectives at least cost. Results in this context mean efficiency
achievements compared against standards. This approach can be used only where results
are measurable. In using a results-oriented audit approach, it may nevertheless be necessary
to examine some critical systems to verify the efficiency information generated by the
audited organization or to seek causes for any revealed inefficiencies.

 The auditor may assess, among other aspects of efficiency management, the adequacy of
efforts to improve efficiency. These include continuing efforts to achieve higher
productivity, improved quality of outputs, or reduced cost of resource inputs, as appropriate.

 The Auditor General Act refers to “due regard” to efficiency. This should not be interpreted
to mean that efficiency should be the overriding management priority in every case. In
determining what is “due regard” in a particular case, the auditor has to take into account
all management considerations, such as policy requirements, the relative importance of
effectiveness and safety, and agreements with staff unions.
 In concentrating on the government’s efforts to achieve efficiency in its operations, auditors
should not lose sight of the possible impact of those efforts on other levels of government
or the private sector. The national economy may not benefit as a whole if efficiency is
gained in one sector at the cost of another.
11.2.1 What is Efficiency?

In essence, efficiency indicates how well an organization uses its resources to produce goods and
services. Thus, it focuses on resources (inputs), goods and services (outputs), and the rate
(productivity) at which inputs is used to produce or deliver the outputs. To understand fully the
meaning of “efficiency”, it is necessary to understand the following terms: inputs, outputs
(including quantity and quality), productivity, and level of service.
 Inputs are resources (e.g., human, financial, equipment, materiel, facilities, information,
energy and land) used to produce outputs.

 Outputs are goods and services produced to meet client needs. Outputs are defined in
terms of quantity and quality and are delivered within parameters relating to level of
service.

LOVELY PROFESSIONAL UNIVERSITY 199