Emerging Strategies for Performance Auditing - VBgov.com

1 RESEARCH REPORTE merging Strategies for Performance AuditingInsights from City Auditors in Major Cities in the and CanadaRonald C. Foster, CIA , CRMA , CISA , CPA , CMA , PMP, CFET homas F. O Connor, CIA, CGAP, CRMA, CGFM, CPA, CFEE merging Strategies for Performance Auditing2 Copyright 2014 by The Institute of Internal Auditors Research Foundation (IIAR F).All rights reserved. Published by The Institute of Internal Auditors Research Foundation247 Maitland AvenueAltamonte Springs, Florida 32701-4201w w part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means electronic, mechanical, photocopying, recording, or otherwise without prior written per-mission of the publisher. Requests to the publisher for permission should be sent electronically to: with the subject line reprint permission request.

2 Limit of Liability: The II AR F publishes this document for informational and educational purposes and is not a substitute for legal or accounting advice. The IIAR F does not provide such advice and makes no warranty as to any legal or accounting results through its publication of this document. W hen legal or accounting issues arise, professional assistance should be sought and Institute of Internal Auditors (II A s) International Professional Practices Framework (IPPF) com-prises the full range of existing and developing practice guidance for the profession. The IPPF provides guidance to internal auditors globally and paves the way to world-class internal II A and The II AR F work in partnership with researchers from around the globe who conduct valu-able studies on critical issues affecting today s business world. Much of the content presented in their final reports is a result of IIAR F-funded research and prepared as a service to The IIAR F and the internal audit profession.

3 Expressed opinions, interpretations, or points of view represent a consensus of the researchers and do not necessarily ref lect or represent the official position or policies of The IIA or The IIARF. ISBN-13: 978-0-89413-904-819 18 17 16 15 14 1 2 3 4 5 6 The IIA Research Foundation3 CONTENTSE xecutive Summary ..7 Report Sponsors ..8 About the Lead Researchers ..9 Research Support Team ..10 Section 1: Project OverviewChapter 1: Introduction ..12 Chapter 2: Percentage of Time Spent on Performance Auditing ..17 Chapter 3: Twelve Best Practices for Performance Auditing ..19 Chapter 4: Fifteen Barriers to Performance Auditing ..27 Chapter 5: The Effect of City Size and Staff Size ..31 Section 2: Discussion of Barriers in Order of ImpactChapter 6: Lack of Formal Education for Performance Auditing ..35 Chapter 7: Insufficient Funding.

4 37 Chapter 8: Lack of Affordable and/or Available training ..41 Chapter 9: Lack of Legislation or Mandate for Performance Auditing ..44 Chapter 10: Immature Performance Reporting Processes ..47 Chapter 11: Immature Governance Processes ..50 Chapter 12: Lack of Support for Internal Audit from Officials, Media, and Citizens ..53 Chapter 13: Lack of Authoritative Guidance in Texts and Journals ..55 Chapter 14: Inadequate Standards for Performance Auditing ..57 Section 3: Conclusions and RecommendationsChapter 15: Seven Most Significant Barriers to Performance Auditing in Canada ..59 Chapter 16: Collaboration Needed Among Professional Organizations ..64 Chapter 17: Summary and Conclusions ..73 Appendix A: and Canadian Cities That Participated in the Survey ..80 Appendix B: City Auditor Survey Instrument ..81 Appendix C: Percentage of Respondents Experiencing Impact from Performance Auditing Barriers.

5 89 Emerging Strategies for Performance Auditing4 Appendix D: Example of City Audit Mission Statement and City Bylaws ..90 The IIA Research Foundation Sponsor Recognition ..94 The IIA Research Foundation Board of Trustees ..95 The IIA Research Foundation Committee of Research and Education Advisors ..96 The IIA Research Foundation5 LIST OF EXHIBITSE xhibit : Survey Response Statistics ..14 Exhibit : Percentage of Major Cities in the and Canada Without Audit Functions ..14 Exhibit : List of Major Cities in the and Canada Without Audit Functions ..15 Exhibit : Average Percentage of Time Spent on Performance Audits ..17 Exhibit : Time Spent on Performance Auditing in Major Cities in Canada and the ..18 Exhibit : Twelve Best Practices for Performance Auditing ..19 Exhibit : Best Practice Audit Functions for Major Cities in the and Canada.

6 20 Exhibit : High-Performing Audit Functions for Major Cities in the and Canada ..21 Exhibit : Functional Reporting Relationships ..22 Exhibit : Availability of Performance Audit Reports to the Public ..24 Exhibit : Response Options for the 15 Barriers and the Scores Assigned ..27 Exhibit : Barrier Scores Listed from Highest to Lowest Impact ..29 Exhibit : Barrier Areas Ranked from Highest to Lowest Impact per Jurisdiction ..30 Exhibit : City Population Compared to Barrier Impact Scores ..31 Exhibit : Internal Audit Staff Size Compared to Barrier Impact Scores ..32 Exhibit : Time Spent on Performance Audits Compared to Barrier Impact Scores .. 32 Exhibit : Internal Audit Staff Size Compared to Time Spent on Performance Auditing ..33 Exhibit : Population of Canadian Cities Compared to Time Spent on Performance Auditing .

7 33 Exhibit : Population of Cities Compared to Time Spent on Performance Auditing ..34 Exhibit : Universities Receiving Grants from IAAAF.. 35 Exhibit : Internal Audit Budget Compared to Budget of Programs Audited ..37 Exhibit : Minimum Funding Levels Suggested for Cities in the United States ..39 Exhibit : Minimum Funding Levels Suggested for Cities in English Canada ..40 Exhibit : Minimum Funding Levels Suggested for Cities in Quebec ..40 Emerging Strategies for Performance Auditing6 Exhibit : Use of training Organizations by Survey Respondents in the Past Five Years ..41 Exhibit : Functional Reporting Relationships of Audit Functions ..50 Exhibit : Information Sources About Performance Auditing ..56 Exhibit : A Comparison of the Impact of Barriers in Canada and the United States ..59 Exhibit : Provincial Legislation for Municipal Auditors in Canada.

8 60 Exhibit : Credentials Considered Necessary to Be an effective Performance Auditor ..68 Exhibit : Use of training Sources in the Past Five Years ..69 Exhibit : Twelve Best Practices for Performance Auditing ..77 The IIA Research Foundation7 EXECUTIVE SUMMARYIn an era of increasing public expectations for improved government services particularly when budgets are constrained Performance Auditing is a useful tool to enhance decision-making at the local government level. Performance Auditing can lead to more efficient, effective , and economical program delivery; stronger controls; and improved compliance with laws and policies. Many audit functions within local governments in the United States and Canada have embraced Performance audits with the support of council and staff. Others, however, are still conducting few or no Performance audits.

9 The objectives of this study were to determine the percentage of time allocated to Performance audits by internal auditors in major cities in the United States and Canada, identify factors that discourage Performance Auditing , and identify best practices for conducting Performance sent surveys to auditors of all the major cities in the United States and Canada with populations greater than 150,000, along with several smaller cities to ensure all states were surveyed. Surveys were completed by 116 audit functions. The researchers also conducted follow-up interviews with more than 60 audit leaders from these cities to learn more about the barriers and the best practices to mitigate them. The average percentage of time respondents spent on Performance Auditing was 58%, compared to 48% for Canadian respondents.

10 At the same time, it should be noted that there was a wide range of differences between respondents. At least one-fifth of respondents in both the United States and Canada spent less than 10% of their time on Performance Auditing . On the other end of the spectrum, almost one in three respondents spent 90% of their time on Performance Auditing , compared to 6% of Canadian respondents who spent more than 90% of their time on Performance Auditing . The most significant barriers to Performance Auditing are difficulty obtaining education and training , insufficient funding, and lack of sufficient authority. These barriers are more prevalent for smaller cities, for audit functions with fewer employees, and in areas where Performance Auditing is not mandated by legislation or the audit charter.