Performance Auditing: The Three E's

Performance Auditing
Internal Audit, Risk and Compliance Services
The three E’s

Increased competition, a shrinking The concepts of economy, efficiency and effectiveness,
world, the decentralisation of commonly referred to as the three E’s, form the basis of
any performance audit.
operations as well as the desire of
Economy refers to the terms and conditions under
management to monitor the overall which an entity obtains the required resources. An
operations of the organisation has economical operation acquires these resources in
appropriate quality and quantity at the right time and
increased the number of internal place at the lowest possible cost.
auditors finding themselves Efficiency defines the relationship between goods or
services produced and the resources used to produce
involved in performance audits them. An efficient operation produces the maximum
(also known as operational or output for any given set of resources input or it has
minimum input for any given quantity and quality of
value-for-money auditing). Such a service goods provided. The underlying management
shift enabled internal audit – with objective is therefore to increase productivity and lower
unit costs.
the objectives of its perspective Effectiveness is defined as how well a programme or
and the rigor of its processes – to activity is achieving its stated objectives, its defined
goals or intended effects/outcomes.
once again become an
independent advisor and value More E’s
creator to management. In undertaking our performance audits, we also focus on
the following additional E’s:
Environment: Sustainable development which means
meeting the needs of the present generations without
Performance auditing is a technique used by internal compromising the ability of future generations meeting
auditors to evaluate the economy, efficiency and theirs.
effectiveness of the organisations’ operations so as to
assure management that its strategic objectives are being Equity: This refers to fairness and impartiality in the use
carried out and whether or not they can be improved on. of public funds i.e. is the selection procedure for
The scope of the audit is expanded beyond the verification beneficiaries of funds fair and void of influence.
of financial controls or compliance with policies as it looks Ethics: This refers to the qualities of honesty and
for the existence of management measures such as integrity in personal conduct and devotion to duty as
leadership, employee empowerment, teamwork, risk manager of public funds.
assessment, management information, communication,
resource allocation, productivity measurement, etc. When all government projects are well executed in
Performance auditing therefore requires flexibility, relation to the 6E’s above, there will be an improvement
imagination and analytical skills to provide organisations in people’s economic welfare bringing about happiness
with innovative solutions and new ideas. and satisfaction.
6E’s + Economic Welfare = 7E’s
The extent and value to be gained from a performance audit ■ Better control and management
depends mainly on the scope of the audit as well as the resources
progress the organization has made in successfully
implementing the necessary building blocks to install a ■ Tighter controls against fraud
performance culture within the organization.
■ Better financial and operational
The benefits associated with performance auditing management information.
therefore could include any of the following:
Improved accountability
Economy
■ Improved visibility of procedures
■ Reduction in costs through better contracting and outputs
■ Reduction in costs through economies on usage of ■ Better and/or more accurate performance indicators.
personnel or other resources.
Performance auditing is often a huge step for an
Efficiency organization but as with every new initiative, the
potential benefits to be gained significantly outweigh the
■ Improved productivity and asset utilization levels efforts to get there.
■ Remedying duplication of effort or lack of coordination. How can KPMG help?
Effectiveness KPMG have a dedicated team of performance auditors
who specialize in assisting public and private sector
■ Better identification /justification of need
clients with performance audit related services. Key
■ Clarifying objectives and policies services include the following:
Training course
■ Better achievements of objectives by changing the
nature of outputs or improved targeting. Provision of high-level awareness workshops and
training courses, tailor-made to address the
Improved quality of service
requirements of clients in understanding the concepts,
www.kpmg.co.za procedures and working methodologies associated with
■ Shorter waiting time
performance auditing.
■ Reduced response times PFMA and MFML compliance
■ Better access to information Helping the public, clients, Assistance to public sector clients to ensure adherence
industry, etc. to the statutory requirements regulating the concepts of
Improved planning, control and management economy, efficiency and effectiveness, as specified in
the Public Finance Management Act 1999, and
■ Introduction/improvements to corporate planning Municipal Finance Management Legislation.
Internal Audit Assistance
■ Clearer definitions of priorities and better-defined targets
Assistance to internal audit functions in developing step-
by-step performance audit manuals to guide them in
conducting their own performance audits. We also
perform peer reviews to evaluate and report on the
performance auditing approach and methodologies in
use by clients’ internal auditors.
1 2
Contact Us 2013 KPMG Services (Pty) Ltd, a South African company and a
member firm of the KPMG network of independent member firms
Ashley Smith affiliated with KPMG International Cooperative (“KPMG
Managing Director, Internal Audit Risk & Compliance Services International”), a Swiss entity. All rights reserved. Printed in South
T: 082 719 2392 E: [email protected] Africa. The KPMG name, logo and “cutting through complexity” are
registered trademarks or trademarks of KPMG International.
Wean Strydom
Director, Performance Auditing The information contained herein is of a general nature and is not
T: 083 458 8415 E: [email protected] intended to address the circumstances of any particular individual or
entity. Although we endeavour to provide accurate and timely
information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be
accurate in the future. No one should act on such information without
appropriate professional advice after a thorough examination of the
particular situation.
www.kpmg.co.za

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Performance Auditing

Internal Audit, Risk and Compliance Services

The three E’s

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