Internal Audit Criterion No. 26 — Performance Audit
Performance audit is an independent examination of an individual, group or organizations activities to assess the efficiency, economy and effectiveness of operations. Performance audits are conducted to provide assurance to stakeholders that any organization’s activities are properly and effectively carried out. Performance auditing assesses if an organization or government department is achieving its goals and objectives with efficient use of resources. This type of audit uses findings from the environment to formulate recommendations and solutions.
Performance audit consists of two types of criteria:
1.Measures that evaluate outcomes or results
2.Measures that evaluate the use of resources to produce outcomes
The purpose of a performance audit is to improve operational performance by assessing the effectiveness and efficiency of an organization’s operations and/or its outputs. Auditors in this category use both quantitative and qualitative measures. This type of audit assesses performance based on predetermined specifications or criteria. It typically covers issues such as: policy compliance, customer service, cost and value, quality, safety and performance measures.
In order to complete a performance audit, the following activities should be conducted:
• Develop performance indicators and metrics
• Establish measurement frameworks
• Compare performance to organizational objectives, industry standards and budget
• Identify performance problem areas, deviations and variances
• Collect, analyze and interpret data and information
• Develop recommendations for remedial action
• Review and assess the impact of corrective action
A performance audit should be conducted in an objective and unbiased manner. The auditor should ascertain the intentions and requirements of the organization, management and stakeholders involved and determine the criteria, standards and evidence needed to review performance. A performance audit should be conducted in accordance with accepted auditing principles, including due care and compliance with applicable laws and regulations.
Performance audits should be conducted on a regular basis and documented with supporting evidence. The auditor should also compare actual performance against the objectives for each competency and make recommendations for remedial action. Finally, the auditor should assess the impact the corrective actions have had on organizational performance and recommend further actions for improvement.
Performance auditing is an important tool in improving the efficiency and effectiveness of an organization’s operations. It can also provide assurance to third parties such as creditors, investors, customers, and regulatory bodies that an organization is meeting its financial and non-financial objectives. This type of audit is essential in providing information and tools to help improve the performance of an organization and ensure it is using its resources efficiently and effectively.
