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Planning and Managing Resources In a Changing Environment

Contributed by the Australian Audit Office*

*    (Country paper of Australia presented at the XIII Conference of Commonwealth Auditors General held at Ottawa, Canada during October 1987.)

Introduction

In the past 10 years in Australia there have been significant environmental changes which have had, and continue to have, an impact on the Australian Audit Office (AAO). These include:

In response to such factors, and changing parliamentary and public expectations, the scope of the AAO's role and responsibility continues to expand.

The formal adoption of efficiency auditing by the AAO, following amendment of the Audit Act in 1979, was a major development in the audit mandate. Audits that are designated as efficiency audits are major reviews which evaluate the economic, efficient and effective use of resources by public sector management.

That new function complemented the traditional regulatory audit embracing legal compliance and financial accountability, and performance audits of a somewhat narrower scope conducted under general provisions of the Audit Act.

Identifying Needs

The AAO agrees that it is necessary for public sector auditors to address their changing responsibilities in endeavouring to ensure that staff resources are sufficient to fulfil the Auditor-General's role. The goals of the AAO are to:

'improve the economy and efficiency of public administration in the Commonwealth sector and its accountability to the Parliament and the community through:

  1. undertaking comprehensive auditing of the Executive and Commonwealth agencies; and
  2. reporting to Ministers and the Parliament and assisting Parliamentary Committee,' and 'develop and sustain the Australian Audit Office as a centre of auditing excellence:
  3. the AAO to be a leader in public sector audit standards and practices;
  4. the AAO to be exemplary as regards the efficiency, economy and effectiveness of its operations and in accounting for the performance of its functions;
  5. staff to be motivated and professionally competent; senior staff to attain wide experience and recognised stature in the Commonwealth administrative milieu.'

NB: 'Commonwealth', in this context, refers to the Commonwealth of Australia.

Flowing from the corporate goals are various corporate, objectives which have been established to achieve the goals laid down. Within the objectives, consideration is given to personnel management programs, staff selection processes, staff development programs, arrangements for staff counselling and opportunities for staff to broaden their experience.

The AAO is subject to resource constraints imposed by the Executive primarily in terms of the oversight by the Department of Finance of staff numbers and dollar allocations. Action to increase the Office's resources, other than in response to demonstrated increases in workload, is likely to require reference to senior Ministers or, perhaps, the Cabinet.

Within that framework, the audit task must first be estimated as accurately as possible, in both the short and long term, in order to identify the resources required to achieve the corporate goals. Human resource needs are estimated in terms of quality, quantity and location. In regard to the last point, the size of Australia and the wide geographic dispersion of auditees are important considerations. The planning processes which support such assessments are described in the next section of this paper.

The level of support services (whether specialist audit or management services staff) is assessed by reference to the need for services essential for the effective operation of the Office and the need for a balanced allocation between the audit and support functions. Some 20% of the AAO's resources are allocated to the support functions with a considerable emphasis on such areas as corporate planning, professional development, auditing standards and methodology, information management and support of computer auditing. That emphasis can render it difficult to make valid comparisons with levels of support services provided in other institutions.

The AAO's Auditing Standards set out the competence requirements for AAO auditors and audit teams. The AAO requires that professional staff hold tertiary qualifications in a relevant discipline eg. commerce, economics, computing. In addition, considerable emphasis is given to the need for understanding of the public sector environment, and knowledge of the AAO's Auditing Standards, practices and methodologies.

Our experience in relation to efficiency audit teams is that they should generally be multi-disciplinary to the extent of including management skills, evaluation experience and financial and data processing audit skills. We are less persuaded of the value of including, as a matter of course, specific skills related to the program or work area being audited, but recognise that utilisation of such skills is appropriate in some audits. Factors such as the scope of the audit mandate, the size of the audit institution and the range and type of audits undertaken dictate whether SAIs should develop a range of skills within their own organisations or hire experts to support this area of activity.

On a separate point, the AAO is not large enough to be able to sustain in-house professional programs for the training of unqualified staff.

Strategic Planning

The AAO's Strategic Audit Plans (SAPs) are based on a three year cycle of audit, and are developed each year by each of the three Audit Divisions. In considering staffing resources a basic distinction is drawn between specialist data processing auditors (a resource that requires particularly careful husbandry) and other audit staff, referred to for convenience as "field'' staff. The SAPs comprise assessed requirements of field and DP resources in terms of:

Experience has shown that, in the case of non-mandatory work such as performance audits, SAPs prepared on the basis of judgments about the quantum of audit work that "ought" to be undertaken have proved to be relatively ineffective tools for management planning and control purposes.

Accordingly, the emphasis for non-mandatory work is on establishing priorities with a view to optimising achievement of audit objectives within available resources. Nowadays the SAPs are prepared with reference to expected resource availability and a priority system distinguishes mandatory and other essential work from work of lesser priority.

Assessments of desirable levels of overall audit activity have been set aside for separate study; a satisfactory objective basis for making such assessments has not yet been identified.

The SAPs prepared by Audit Divisions are considered at the June meeting of the Priorities Review Committee (PRC), which comprises the Auditor-General, the Deputy Auditor General and Division Heads. The PRC takes into account broad considerations such as the relative balance of audit activity across the audit portfolio, assessments by Audit Divisions regarding areas of risk and vulnerability, and likely scope for identifying areas where there is room for improvement with quality of public administration. Among other things attention is also paid to statutory requirements, any suggestions by Parliament or its committees and the financial and economic policies and programs of the Government.

The PRC oversights the annual allocation of resources among Divisions and Regions in the light of the SAPs, determines the allocation of audit tasks among the Regions and settles the work program for the year immediately ahead. It is the responsibility for each Audit Division to ensure that adequate guidance as to priority and timing etc. is provided to Regions in respect of the Division's approved program.

The PRC holds three other meeting during the year, at which it reviews progress with the audit program and makes any major program revisions that are necessary. These PRC meetings also review the continuing effectiveness of the AAO's management information systems and resource management processes.

The AAO has for many years been using computer-based management information systems to support the planning of audits, the allocation and control of resources and the measurement of performance against objectives. Management demands have outgrown the capacity of existing systems, and the AAO is now moving to take advantage of advanced computer technology by replacing current systems with more comprehensive audit planning and control systems.

As already noted, the AAO experiences the fairly common problem of resources being less than those required for all desirable tasks. Since the full range of mandatory financial audits must be undertaken, other audits must be subjected to tests of essentiality before they proceed. It will be noted from the following table that approximately two-thirds of the AAO's available audit resources are consumed in mandatory audits of financial statements and accounts and records of statutory authorities, companies and departments. The remaining one-third auditing is devoted to other regulatory audits and performance auditing (including computer audits), referred to as "project" audits

Estimated Allocation of Audit Resources

  1985-86 1986-87
Audit of the Government's financial % %
statements, prepared by the Minister for Finance 10 11
Audits of financial statements of statutory authorities and companies 57 55
Audits formally designated as "efficiency audits" 7 9
Other project audits (including audits of computer systems) 26 25
  100 100

The computer system used in the planning and monitoring of work includes a job budgeting and time recording system, to monitor the level of resources consumed by audit tasks in terms of the time and cost of completing the work. The system provides reports to managers to assist with monitoring performance against program, and fee costs for fee paying auditees.

Staff Recruitment

Soundly based recruitment and promotion policies are an essential element in resource management in a changing environment. Their importance is enhanced where, as in the AAO, staff turnover is relatively high and recruitment has to proceed in a highly competitive market for the necessary accounting, information technology, or other expertise. In the AAO, recruitment and promotion are based on merit. By law, the AAO is required to maintain an equal employment opportunity program, subject to the operation of the merit principle. All recruitment to the AAO is handled in-house.

Recruitment of the AAO is essentially at two levels. In recruitment of graduates of tertiary institutions, considerable attention is given, before the commencement of the interview program, to campus visits and the provision of information about the AAO. The process generates large number of applications (280 in 1986). Generally, the number of job offers made is about three times the number of graduates recruited; that number may be up to 30 in a year but varies having regard, among other things, to the relative success achieved in lateral recruitment at relatively junior auditor grades.

Lateral recruitment of qualified staff is required for the conduct and supervision of audits. For recruitment of such staff the practice is to seek applicants from inside and outside the Public Service.

The AAO has found a significant lack of understanding of the basic concept of public accountability in the private sector of the profession. The graduates recruited by the AAO must be trained in such basics, including government accounting systems, due to the lack of coverage by tertiary institution of this significant area.

Career Management

As mentioned earlier the second Corporate Goal of the AAO is to "develop and sustain the AAO as a centre of auditing excellence"

In keeping with this goal the Professional Development function has developed a training and development strategy which aims to:

The Corporate Management Division has under study an assessment and counselling process, oriented to staff development, which would include the identification of career paths.

As the audit task has developed to encompass performance and computer auditng, staff have been encouraged to extend their capabilities by focusing on broader management issues and applying a wider range of investigative and anlaytical techniques.

Job Rotation

The AAO considers job rotation an important career development practice. Graduate recruits participate in a formal rotation program during their first 12 months in the Office. The program exposes the recruits to the variety of work and increases their awareness of the functions of the Office.

In the Regions it is the responsibility of Regional Managers to ensure staff are exposed to, and experienced in, a variety of audit tasks. Regional Manager positions are 3 year term appointments after which officers are either promoted or transferred to Central Office where the management experience gained in the region is expected to be of value to both the AAO and the officer.

Within Central Office, responsibilities for auditors are rotated. Job rotation provides staff with the opportunity to gain work experience in a variety of audit areas as well as providing flexibility to AAO management in allocating resources to achieve the audit task.

The AAO encourages staff interchanges both within and outside the Public Service. An interchange arrangement also operates with the Office of the Controller, and Auditor-General of New Zealand.

Performance Appraisal

A staff appraisal system for staff development purposes has not operated formally within the AAO for some time but, as noted above, such a counselling process is currently under study.

Promotion selection procedures nevertheless provide staff with the opportunity to be appraised and counselled on performance. As there is a regular turnover of staff, opportunities for assessment and counselling through the competitive selection process occur at relatively frequent intervals.

The quality assurance procedures of the Office provide further opportunities for supervisors to assess the performance of staff and to undertake counselling and recommend training as necessary. These procedures ensure that the audit product is of a high quality and staff are made aware of areas which need improvement. This form of appraisal is performed on an on-going basis and allows staff to become aware of their supervisor's assessment of their strengths and weaknesses in the normal course.

While recognising that an effective appraisal system could help generate understanding and commitment and create an environment for improvement in productivity, the AAO also is conscious that such systems can be expensive to devise and conduct, and that there can be difficulties in ensuring continued effectiveness in operation.

Remuneration

Recent amendments to the Public Service Act have given the Auditor-General power to create, abolish and re-classify positions within the AAO. However, in practice, the Government's control of expenditure limits his scope to increase staff numbers or vary classifications, especially at senior executive levels.

The staff of the AAO are appointed under Public Service Act terms and conditions. The Auditor-General does not have discretionary powers in relation to remuneration or terms and conditions of employment. Classifications and salary levels of professional audit staff range from some $17,500 for graduate recruits to some $60,000 for Heads of Audit Divisions.

A particular concern relates to the need to address the problem of the additional workload which has fallen on senior executive staff within the Office following the expansion of performance auditing. Action to bring the remuneration that these officers receive into line with their increased responsibilities requires, as a minimum, involvement of top management in difficult negotiating processes with the Government and its coordinating agencies.

Conclusions

To identify the audit task and any shortfall in the resources necessary to complete that task, it is important that formal planning processes are established. In preparing the audit strategy, important considerations are the statutory responsibilities of the Auditor-General, any specific directions he has issued, assessments of information regarding the portfolio of auditees, any suggestions/recommendations of Parliamentary Committees and the overall economic and financial policies and programs of the Government.

The retention/recruitment of appropriate staff to enable planned audit coverage to be achieved is a continuing concern to government audit institutions. It is necessary to formulate strategies which ensure there are appropriate staff resources with disciplines appropriate to the audit task, and in particular having an understanding of the public sector and possessing investigative/analytical skills, to meet demands in the short and longer term.

Retention of staff is assisted by the development of a staffing philosophy which seeks to provide appropriate professional development and work satisfaction for all staff. Staff are ecouraged to extend their capabilities by focusing on broader management issues and acquiring expertise in a wider range of auditing techniques including computer assisted procedures. Important aspects in such activities are professional development programs, and job rotation both within and without the audit institution.

AAO experience is that periodic performance appraisal can motivate staff, increase the quality of the audit product and improve productivity. A variety of appraisal systems may be considered for use by audit institutions, but all quality assurance practices employed should incorporate a mechanism which provides staff with feedback on their performance.

Public sector audit institutions should endeavour to ensure that as far as is possible, adequate and competitive remuneration levels are provided for audit staff, in line with their responsibilities. It is recognised, however, that many institutions are restricted in this area by the prerogatives of the Executive.