Modern organizations are facing the critical challenge of demonstrating better performance and enhancing effectiveness that ultimately contributes in securing public confidence. Supreme Audit Institutions (SAIs) are no exception to it. Effectiveness is widely used in auditing in the context of applying modern concept that embraces economy, efficiency and effectiveness (3Es). But what implies to effectiveness of audit, irrespective of organizational status (internal or external), approach (system/process oriented, financial and/or compliance, management/performance) and methodology followed in carrying out a particular audit assignment? This is indeed a matter that needs focused attention and consensus among its stakeholders (clientele group such as legislature, executive, media, policy analyst etc.). Such consensus is essential to initiate appropriate measures to enhance and evaluate effectiveness.
This article attempts to revisit the objectives of audit, discuss the concept of audit effectiveness, underlying challenges and issues, measures to enhance effectiveness, methodology and approaches to evaluate effectiveness.
The objective of audit has expanded substantially in recent decades, although the exact date of commencement of auditing is still to be known. It is generally agreed that credibility of financial function was a matter of prime concern since early days of state system. In early stage of its evolution, the major concern of audit was to minimize errors in book keeping and control fraud on the part of incompetent or dishonest officials. Therefore, nations established system of auditing with limited scope and focused to financial control through following measures.
These functions of audit still deserve substantial significance in determining audit objectives and scope. Audit was limited in attesting the legality and accuracy of financial transactions for a long time. Later it expanded to include concept of propriety, which focused on identifying improper and wasteful transactions even though they might be in conformity with rules and regulations. The basic logic behind it was that audit should try to encourage and secure highest degree of morality in public officials by looking into the wisdom and faithfulness of financial decisions from the perspective of social implications of public actions and integrity in managing public resources. "The practice of auditing began when one individual assumed stewardship over another's property. The accuracy and reliability of the information contained in the steward's report would have been subjected to some sort of critical review. Evidence has been found that over two thousand years ago Egyptians, Greeks and Romans all utilized system to check and counter-check the accounting of officials entrusted with public funds." (1 R.J. Anderson - The External Audit, Copp Clark Pitman., Second Edition, 1984, p.8 ) But the objectives of audit have broadened over a period of time. Government auditing, in contemporary context, embraces new issues such as environment, equity, ethics, human resource management etc. The issue regarding the role of auditing in preventing and detecting fraud and corruption gained attention in recent years. The Sixteenth Congress of International Organisation of Supreme Audit Institutions (INCOSAI) held deliberations on this issue in length and reiterated the role of auditing in preventing the detecting fraud and corruption. The congress stressed the need of strong financial management, more elaborate mandate that allows SAIs to carry out investigations on the cases that are suspicious to corruption. The congress emphasized the need and role of honest, able and well-motivated public service. These factors have been accepted by all spheres of society, choosing fraud and corruption as the theme of INCOSAI reflected a growing awareness to this problem, which exists in varying degrees in members states. In addition, international financial institutions have also focused their attention in the systems and procedures related to management of resources that are susceptible to corruption.
The overriding objectives of audit, in modern context, are:
The Lima Declaration of Guidelines on Auditing Precepts (INTOSAI's Magna Carta) highlights the purposes of audit as follows:
The concept and establishment of audit is inherent in public financial administration as the management of public funds represents a trust. Audit is not an end in itself but an indispensable part of a control system whose aim is to reveal deviations from accepted standards and violations of the principles of legality, efficiency, effectiveness and economy of resource management early enough so as to make it possible to take corrective measures in individual cases, to make accountable parties accept accountability, to obtain compensation, or take steps to prevent such violations from recurring or at best to make this more difficult.
Following critical and inspiring observations of distinguished personalities on the contribution of audit will provide vivid example of its evolving role.
There are a series of basic objectives that can be accomplished through the audit function. These audit objectives are to disclose whether an organization and its officials are:
The normative objective of an audit is to help management and administration to maintain at all times a high degree of justice, fairness and equality in dealing with people by providing reliable and relevant information on their operation.
Auditing helps in promoting sound financial management by examining financial transactions considering organizational objectives, procedures and practices. It focuses on the evaluation of the responsibility of officials accountable in managing organizational resources with a view to finding out possible ways for effective control and improvement in operational system. "The positive role of audit has generated greater awareness amongst administrators for better management of resources, more reliable information systems, and effective planning and implementation. It has been a catalyst in brining about changes by setting examples to be followed, by providing expertise in financial administration, and by ensuring adequate review of the management of resources." (The Bali Declaration on the Role of Audit in Promoting Reforms for Efficient Public Administration and Corporate Management, Supreme Audit Board, Indonesia, 1988, p. 217. )
Effectiveness is a complex concept, not susceptible to a simple definition having universal application. Its meaning differs depending upon circumstances and status of organization, program and function in question. "A concise definition of effectiveness evocative of the range of meanings attributed to it does not exist, although the notion of goal attainment is generally accepted as central to the notion'. (CCAF Lexicon: A glossary of governance, accountability and comprehensive audit terms, Canadian Comprehensive Auditing Foundation, 1999, p. 16.) It is also defined as "the extent to which objectives are achieved and the relationship between the intended impact and the actual impact of an activity.( Auditing Standards - International Organisation of Supreme Audit Institutions (INTOSAI), June 1992, p.67.) In an nutshell, attainment of predetermined objectives and effectiveness are mutually inclusive.
Some of the common interpretations of effectiveness and their applicability in the context of SAI can be presented as follows.
| Common Interpretation of Effectiveness | Applicability in the context of SAI |
It is concerned with the relationship between the intended results and the actual results of projects or programs or other activities. How successfully do outputs of goods, services or other results achieve policy objectives, operational goals and other intended effects? |
The prime and
predetermined objective of auditing is to play significant role in improving
the management of public resources. Such role may be both preventive and
corrective.
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This interpretation seems rather invisible to audit. Audits have a clarifying and confidence building impact. Efficient audit contributes in discouraging misappropriation and misallocation of funds and enhancing efficiency of administration. It also provides beneficial effect on country's flow of productive capital from internal and external sources. |
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Common goal of
state audit is to:
Regarding economy and efficiency in the management of audit, auditor has to accomplish their intended objectives with least cost and maximum results. By doing this as efficiently and effectively as possible, SAI can give their best support to national development. |
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The dimensions of auditing will further elaborate its objectives and contribution.
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Auditors examine and evaluate economy and efficiency in a particular organization or program by means of physical verification, field inspection and holding discussions with beneficiaries and stakeholders in course of audit. This provides pros and cons of management system and practice. Careful analysis of feedback received on pros and cons from different organisations provides sound basis for offering practical recommendations for improvement. |
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Auditors look into broader issues relating to resources management in course of the evaluation of public policies that effect multiple organizations. The application of performance auditing concept has encouraged auditors to look into thesystem and procedures of operation and performance that provides useful information on the actual appraisal of the system and procedure of managing public resources, that is, acquisition, utilization, safeguarding and reporting. In this context, audit concentrates its efforts in analyzing efficiency in planning, implementation, and monitoring and evaluation system. |
Transparency is related to the process of providing information of public domain to public in a systematic and objective manner. Audit attests financial information furnished by the audit entity and expresses opinion on it. In this context, auditor makes comparison between expected and actual performance and highlights substantial shortcomings, which would eventually encourage efficient discharge of responsibilities, entrusted to public officials.
SAI is one of the public institutions that have the oversight responsibility to safeguard public interest. In popular term, audit is watchdog of public fund made up of the contribution of every citizen. Despite, its recognition as an institution safeguarding public interest, audit faces various challenges that has impaired in achieving effectiveness and gaining public confidence over its very existence making SAIs vibrant. Only vibrant SAI can influence society and encourage positive changes. Growing awareness towards the performance of executives and call for ethical behaviour in public sector has made SAIs to examine and evaluate financial and other operations independently and impartially. SAIs are entrusted with the critical role of watchdog to warn against possible consequences of the existing weaknesses in public fiscal management. SAIs in most of the countries and particularly in developing countries are confronting critical challenges in enhancing effectiveness. The common challenges of SAIs and their resultant effects and consequences are as follows:-
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Problems and Challenges |
Effects and Consequences |
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In this context, it would be appropriate the common criticisms on audit from executives. Executives normally criticize audit on following grounds.
These criticisms are valid from the perspective of executive. But at the same time, it is equally important to note than the very existence of audit is to make independent and impartial examination and evaluation of financial and other performance.
Challenges and public concerns encourage in finding ways and means that support in addressing them. There is always a question who audits the auditor? This question is valid in many respects. SAIs should be able to demonstrate self-explanatory performance. But how many SAIs have been able to demonstrate such performance and what mechanisms are in place to ensure that they address the basic concerns of public without jeopardizing their independence and impartiality.
There are several measures that require attention of SAIs to stay relevant. However, following measures deserve prominence.
Good governance fosters strong, but sharply delimited, states capable of sustained economic and social development and institutional growth".( Development in Practice - Governance ; The World Bank Experience, The World Bank 1994 ) Government and governing bodies exercise such authority. Various factors contribute in strengthening governance, but followings are more prominent.
- Timely and relevant improvement in management systems
- Clearly and precisely defined accountability relationships
- Sufficient legal framework to prevent and control deviations
- Transparency in management information system and decision making process.
In addition, officials of governing bodies should possess necessary knowledge, understanding and authority to obtain information and issue directions, regarding:
- Objectives and strategies of the organisation,
- Interests of the people whom they represent
- Achievements of the organization, issues and challenges with it,
- Management and reporting practices,
- Actions taken to improve management and operations practices.
Governance and accountability are facing serious challenges in recent years, mainly due to following reasons.
- Attitude of diverting public resources to serve private interests.
- Arbitrariness in application of rules and regulations.
- Lack of transparency in decision making.
- Lack of well-established system to judge the relevance of public activity.
- Lack of clarity in defining accountability relationships.
These issues can be adequately addressed by the SAI, even within existing mandate by placing more importance to substantial aspects of government operations and encouraging auditors to improve performance of their institution by accepting challenges and risks. It is possible only through strong, dedicated leadership and quality assurance mechanism.
- Expectation of more than capability to deliver and available resources permit,
- Inadequate appraisal of external and internal environment,
- Lack of co-ordination within organization and related institutions,
- Inefficient management direction, and
- Emphasis on political consideration to technical and specialized subject matters.
External audit is normally carried out subsequent to the execution of plan and policy. Most of the issues related to it may be appraised in connection to the identification and analysis of causes and effects. It provides opportunity to recommend ways and means to make planning and policy realistic. Audit should focus on addressing problems and challenges of audit entities by providing meaningful feedback for plan and policy formulation, execution and monitoring. Due attention should be given towards establishing exchange of information related to planned performance between central planning authority and SAL
- Create an environment and situation where employee become able to accept responsibility for results;
- Develop ability and willingness to advance organization towards its goal;
- Build ownership and encourage enterpreneurship within organization culture;
- Be more results-oriented, responsive and accountable;
- Accept real and appropriate authority to make decisions;
- Create and work within enabling structures and systems;
- Create ability to connect responsively with clients and colleagues;
- Act with personal integrity and accountability; and
- Be innovative and find new ways to improve quality of service or performance.
Empowerment requires appropriate knowledge and skills, self-confidence a willingness to be accountable and work together towards common goals, and courage to take risks, learn from mistakes and constantly seek individual and organizational improvement. SAIs should endavourto maintain a critical balance between accountability and empowerment.
Public orgnisations are recognized on the basis of their contribution in addressing critical challenges facing the society and nation. They should be capable of securing public confidence by delivering output of high quality and demonstrate integrity, fairness and responsiveness to public sentiment without impairing their purpose and social accountability. SAI has to discharge unique responsibility of upholding public accountability and encouraging the management to be more economical, efficient, effective and ethical by demonstrating exemplary performance. To achieve this objective SAI has to make its own operation economical, efficient and effective. Making prudent judgment in critical balance between actual state of performance and legal requirements will certainly enhance the role of SAI and remain innovative and relevant.