Review of the literature:
Performance audit comprises three stages of planning, execution, and reporting. The audit program is a written plan for the execution of an audit. This can be either Preliminary Survey Report (PSR) or it can be a detailed execution plan. It provides the auditor with a tool to review the scope approach and logic for conducting any audit. (Khan, Executing Performance Audit November 1988) During the Performance Audit, an audit program is prepared to collect evidence. The audit considers the logic in various actions of the administration of any department. Some procedures must precede others in order to know about the occupancy of an estate one should know about the allotment policy or rate of vacancy. The audit uses a clear approach like a study of files, field visits, interviews, and surveys. There are guidelines for the collection of evidence and the work ethics of auditors. The distribution of work should be in a balanced manner so that the available resources for audit may be utilized in an optimal manner. When an audit program is developed it should not be mechanical rather it should be tailor-made for each assignment and specific background information should be taken into account by the auditors because each organization has different internal controls that should be considered. No readymade audit programs are able to cover all the aspects. This type of audit emphasizes that the language of the reports should not be ambiguous and it should avoid phrases like ‘adequate’, ‘enough’, ‘thorough’, and ‘sufficient’. For example, it should clearly mention that auditor will check all the purchases of durable goods beyond Rs. 50,000 with the following objectives to assess their valuation, existence, safeguard, and utilization. The detailed audit program has many advantages and a few advantages of being curbing the imagination of the auditors and care should be taken that audit is not reduced only to checklists and questionnaires should be so designed that they are creatively used for analysis purposes. (Khan, Executing Performance Audit November 1988)
Audit objectives and audit criteria are formulated in a way that can elicit the maximum information and can provide a guideline for collecting the true information so that the real picture can be presented. Audit procedures are applied to substantiate or falsify issues of potential significance. It also handles significant and unusual developments, and the work of internal auditors or consultants is also examined by the auditors. The auditee is informed about the initial findings. In order to make a selection, multiple criteria of cost, significance, availability of data, ease of audit execution, abnormal bottlenecks, and policy directives of the government are analyzed. It is further observed what will be the future impact of the entity operations on the national, provincial, or local socio-economic life. (PAW March 1988) In the Performance Audit, internal controls are evaluated and it reveals the weak areas of management. Sensitivity analysis is carried out in areas more sensitive to changes in cost, time, or both. Performance auditors can only be successful if they have the required qualifications and skills. They should remain alert to irregularities, frauds, wastages because it adversely affects the performance of the organizations. It is necessary to collect evidence to reduce the risk of erroneous findings. Direct evidence is better than indirect and documentary evidence is better than oral. (PAW March 1988)
Three “E”s is the mantra of the Performance Audit. These are economy, efficiency, and effectiveness. (Z. Ahmad, Introduction to Performance Audit 1993) The economy is concerned with the right amount, right time, right place, right cost, and right kind in any transaction, project, or program. Efficiency standards identify different inputs from outputs and try to relate the outputs and outcomes with each other. In order to satisfy efficiency different comparisons can be made that can be between different authorities, within the organization, a public organization can be compared with a private organization, past performance can also act as a guide for future comparisons and how much targets have been achieved from the set targets. Effectiveness is a bit broader concept because it covers the methods of reporting, how management behaves, how relevant is the whole process, what is the level of achievement of results that were intended by the organization. (Z. Ahmad, Introduction to Performance Audit 1993) Performance Audit is meant for development projects. There are three questions that are asked by the auditors when working on their assignments. Question no.1 is “Was the intended output achieved in the estimated time and cost?” (Z. Ahmad, Introduction to Performance Audit 1993) Second question is, “was the project managed with due regard to economy and efficiency in conformity with regulations, rules and procedures?” (Z. Ahmad, Introduction to Performance Audit 1993) The third question is, “To what extent were expectations about costs and benefits realized?” (Z. Ahmad, Introduction to Performance Audit 1993) In order to get the answer for the second question tools like net present value (NPV), internal rate of return (IRR) and other techniques are used. Effectiveness is used in longer-time programs and not in projects because the limited scope of the projects is not suitable to answer questions about the effectiveness and outcomes of certain investments.
A program is defined as “an organized set of activities directed to achieve desired results.” (Z. Ahmad, Introduction to Performance Audit 1993) Performance Audit also evaluates programs by using scientific methods to gauge the implementation process. Performance Audit is a tool for accountability and assistance to management. (Z. Ahmad, Introduction to Performance Audit 1993) Some serious reservations have been expressed by the different segments of management and bureaucracy against auditors. The audit is considered as very narrow-minded, inflexible, unfriendly, and rigid. It goes by word and ignores the spirit behind the word. Never place them in place of management and observe the things from a distance and they do not suggest any solutions for the problems pointed out by them. These complaints arise because audit traditionally deals with financial issues and it is mostly in the form of post-audit where it is left with little option to do anything other than reporting on discrepancies.