Objectives of performance auditing -
The objectives are evaluation of economy, efficiency, and effectiveness
of policy, programmes, organization and management. Policy is usually
defined as an effort to achieve certain aims with certain resources and
perhaps within a certain time. A programme can be described as a set of
interrelated means-legal, financial, etc. to implement a given policy.
Organisation can be defined in different ways, but mostly it is taken to
mean the aggregate of people, structures and processes that have the
aim of achieving particular objectives.
In an organized set up or entity, the entity’s goal and objectives are governed by its constitution. As well known to us, the Memorandum and Articles of Association of a company forms the constitution of the company as also the basic document for entering into a contract with that entity. Authority is delegated to the management. Management generally refers to a person or group person(s), like Board of Directors in a company, vested with powers to take all decisions, actions and framing rules for the steering, accounting and development of human, financial and material resources. Management decisions are mainly internal to the operations of an organization.
Policies
and programmes decided by the legislature, the executive or executive
official, relating to a specific organization (and its internal
activities and performance) are the broad guidelines or parameters
within which the management is supposed to function. The management is
accountable in so far as public sector enterprises are concerned to the
legislature and the executives in the Govt. The basic principle of
public finance, which not only applies to Govt. expenditure but also
forms part of prudential norms of finance in any organization, is that
the delegated authority shall observe that care and due diligence in
sanctioning of any expenditure as an ordinary man of average prudence of
his caliber would have had. Management’s action is watched by other
statutory authorities like CAG, CVC, etc. as to utilization of the money
sanctioned for the purpose of sanction and also within the sanction
especially from the angle of reasonability and the benefits flowing from
such expenditure. Efficiency is the input-output ratio and in the case
of public spending efficiency is achieved when the output is maximized
at the minimum of expenditure. These two aspects mainly relates to
economy and efficiency while efficacy is measured by the benefits can
point out the consequences of a given policy.
The auditors, who undertake performance audit of a program or unit, must posses knowledge of the industries or labor contracts where these provisions are applicable and also identify the population thereof before carrying out audit program. The auditor shall evaluate, as part of performance audit, the standard of living before implementation and after implementation of the Act. Further he shall have to evaluate the evidence available before him as to nature of returns prescribed and obtained for taking appropriate action. Auditor shall also have to evaluate the economy, efficiency and effectiveness in the welfare systems to be audited. The performance auditor can then study the shortcomings in the coordination between different agencies like labor department, EPF and ESI organization and the control systems and point out a set of relevant problems. Auditor shall also point out lacuna, if any in the existing legal frame work or enforcement mechanism to strengthen the objective of leglislation. Another possible area of critical audit may be to study actual level of compensation required in each area keeping in mind the local living conditions and where the minimum wages prescribed in the statute is demonstrably different from this level he may report the same to the Govt. for taking appropriate action. In this manner, the performance audit can not only examine the reasons for such vagaries but also ensures that the legislation serves the intended purpose. By reporting the same to the legislature, the corrective is made possible.