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PERFORMANCE AUDITING: KEY STEPS FOR …

KNOWLEDGE. BRIEF. PERFORMANCE auditing : KEY STEPS FOR MEASUREMENT. BY RONELL B. RAAUM, STEPHEN L. MORGAN, AND COLLEEN G. WARING. As the information age accelerates into the innovation age, the role of PERFORMANCE auditors in measuring, auditing , and improving organizations continues to SUMMARY. become more essential. PERFORMANCE auditing promotes best practices by measuring and reporting on all Auditors got into the business of developing information PERFORMANCE both good and bad. This about organizational PERFORMANCE largely because article focuses on key considerations for traditional sources of information could not fully meet the PERFORMANCE measurement, including requirements of managers, elected officials, and others efficiency, timeliness, quality, and program who need to know and act on a wide range of results.

About the Authors Note: Ronell B. Raaum, Stephen L. Morgan, and Colleen G. Waring are the co-authors of the third edition of Performance Auditing. Ronell B. Raaum, CGAP, CGFM, has been involved in the profession of performance auditing for 50 years as a practitioner, trainer, and author. He retired from the Government Audit Training Institute …

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Transcription of PERFORMANCE AUDITING: KEY STEPS FOR …

1 KNOWLEDGE. BRIEF. PERFORMANCE auditing : KEY STEPS FOR MEASUREMENT. BY RONELL B. RAAUM, STEPHEN L. MORGAN, AND COLLEEN G. WARING. As the information age accelerates into the innovation age, the role of PERFORMANCE auditors in measuring, auditing , and improving organizations continues to SUMMARY. become more essential. PERFORMANCE auditing promotes best practices by measuring and reporting on all Auditors got into the business of developing information PERFORMANCE both good and bad. This about organizational PERFORMANCE largely because article focuses on key considerations for traditional sources of information could not fully meet the PERFORMANCE measurement, including requirements of managers, elected officials, and others efficiency, timeliness, quality, and program who need to know and act on a wide range of results.

2 PERFORMANCE aspects. PERFORMANCE auditors develop and report information on all aspects of PERFORMANCE For complete information about financial and nonfinancial. They may also provide specifics PERFORMANCE auditing , see the fully revised about where and how improvements can be made and third edition of PERFORMANCE auditing , the likely impact of those improvements. available soon from the IIA Bookstore ( ). According to survey responses from public sector auditors throughout North America, an average of 61 percent say they have conducted a PERFORMANCE Criteria for Assessing audit in the past year. The rate rises to PERFORMANCE 68 percent for respondents specifically Before you measure existing in core government.

3 In comparison, the PERFORMANCE (the condition), you need rate is only 43 percent for those in to identify appropriate criteria for government-operated services and for assessing PERFORMANCE . With criteria those in government-owned enterprises you can determine whether the existing (see Appendix A, Exhibit 1). PERFORMANCE is a best practice to be Those who are involved in PERFORMANCE emulated or an area in need of auditing spend a substantial percentage improvement. One of the most common of their resources on it. Core methods for identifying PERFORMANCE government has the highest average at criteria is benchmarking. 53 percent. For those in government- Benchmarking compares specific operated services, the average was 47.

4 PERFORMANCE across entities doing the percent, and for government-owned same or similar work. The highest enterprises, it was 38 percent (see Appendix A, Exhibit 2). performing entity sets the benchmark the criteria for PERFORMANCE auditing promotes best practices by how good PERFORMANCE can be. You can look to the measuring and reporting on all PERFORMANCE both good benchmark organization for information on the causes of and bad. This article focuses on key considerations for good and poor PERFORMANCE , and on best practices ideas PERFORMANCE measurement, including efficiency, for lower-performing entities to follow. Benchmarking has timeliness, quality, and program results. its greatest utility in auditing output PERFORMANCE , but it applies as well in auditing acquisition of resources where Page 1.

5 PERFORMANCE auditing : Key STEPS for Measurement the concern is with the type and quality of resources, the timing of their acquisition, the price paid, or the efficiency NEW EDITION OF. of the organization's acquisition processes. When benchmarking, auditors measure the level of current PERFORMANCE auditing . PERFORMANCE the condition. The growth of PERFORMANCE auditing comes from its ability to promote best practices by The 10 STEPS for benchmarking for PERFORMANCE auditing measuring and reporting on all PERFORMANCE are: both good and bad. This balanced approach celebrates accomplishments and 1. Select the audit subject. 2. Select the benchmark entities. finds solutions to problems. 3. Measure PERFORMANCE within both the audit subject and the benchmark entities.

6 The fully revised third edition of 4. Compare PERFORMANCE to determine if a gap PERFORMANCE auditing provides step -by step exists between the benchmarks and the audit guidance to incorporate this approach into subject. your audit function, along with updated 5. Determine if the PERFORMANCE gap results in a references to INTOSAI, GAO, and IIA. significant effect. guidance. Be among the first to obtain the 6. If so, brief management on findings and third edition of PERFORMANCE auditing by obtaining further explanations for the gap. 7. Collect data on possible causes for the ordering your copy directly from the IIA. PERFORMANCE gap. Bookstore. 8. Develop alternative solutions to close the gap. 9.

7 Communicate findings with responsible officials to discuss alternative solutions. 10. Recommend the best solution. 8. Prepare measures. 9. Determine the consequences. Measuring Existing PERFORMANCE 10. Determine causes. One aspect of PERFORMANCE auditing that tends to Timeliness separate it from general auditing is the emphasis on Compared to other aspects of PERFORMANCE , timeliness is measurement of results. Let's look at four key areas for relatively easy and inexpensive to measure. Different measuring existing PERFORMANCE : efficiency, timeliness, program types will prioritize different dimensions of quality, and program results. timeliness. For example, queuing time is most important Efficiency in a driver's license renewal function, while the total elapsed time matters most to a repair operation where Efficiency represents the relationship between inputs and the equipment is out of service until repairs are complete.

8 Outputs. Depending on the availability of good data, the In contrast, response time is a critical measure for effort involved in measuring efficiency can vary widely emergency responders, such as fire and police operations. from easy to complex; however, the payoff can be tremendous. An audit that identifies inefficient operations The 10 STEPS to develop timeliness measures and analyze and highlights opportunities for improvement provides the results are: examples for others to emulate. 1. Identify outputs. The 10 STEPS for audits of efficiency are: 2. Select the relevant dimension of timeliness. 1. Select outputs. 3. Select unit of measure. 2. Select inputs. 4. Determine criteria. 3. Select measurement method.

9 5. Select analysis technique. 4. Select unit of measure ( , applications 6. Identify needed data and assure its quality. processed, or training classes held). 7. Collect data. 5. Select criteria. 8. Prepare measures. 6. Identify the needed data and assure its quality. 9. Determine consequences. 7. Collect data. 10. Determine cause. Page 2. PERFORMANCE auditing : Key STEPS for Measurement Key dimensions of timeliness include: elapsed time, must include information about the following four waiting time, queuing time, response time, and on-time. elements: (1) condition with the intervention, (2). The units of measure can be minutes, hours, days, and condition without the intervention, (3) effect, which is the months; seldom weeks and years.

10 Benefits attributable to the intervention, and (4) cause, which is the intervention itself. Quality The dimension of quality being measured will determine Intervention impacts are typically quantified using the whether auditors will find measurement easy or complex. following evaluation designs: pre-post analysis, For some services, such as medical care and law interrupted time-series, comparison-group analysis, enforcement, quality measurement is elusive. The evaluation synthesis, and contribution analysis. difficulty comes in selecting a unit of measure that defines In measuring program results, auditors need to be alert quality. For many government services, quality may rest in for the potential of rival causes.


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