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Audit and assurance

Audit and assurance. Lecture 8d Internal audit: Operational audit Value for money audit (VFM). OPERATIONAL AUDIT. OPERATIONAL AUDIT PERFORMANCE AUDIT MANAGEMENT AUDIT Main objective is the effectiveness and efficiency of operating performance for the future Includes non-financial areas.

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Audit and assurance

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  1. Audit and assurance Lecture 8d Internal audit: Operational audit Value for money audit (VFM)

  2. OPERATIONAL AUDIT • OPERATIONAL AUDIT • PERFORMANCE AUDIT • MANAGEMENT AUDIT • Main objective is the effectiveness and efficiency of operating performance for the future • Includes non-financial areas

  3. TYPES OF OPERATIONAL AUDIT • Functional • Examples – invoicing, production… • Auditor specialisation • Organisational • Interaction of functions • Examples – factory, dept., branch, subsidiary… • Special assignments • Terms of reference • Examples – investigations (why IT system is ineffective? Is there fraud?); recommendations for cost reductions…

  4. VALUE FOR MONEY AUDIT • Main use (and origins - 1980’s) in the public sector • (Treated as part of operational audit in the private sector) • CCAB Brief 1990 - The ‘3 E’s’ approach to VFM

  5. VFM • Profit-making entities • competition • share price • corporate objectives (ROCE, GP%, PBTI…) • Non-profit-making entities • VFM can prompt review (a catalyst for management action)

  6. The 3 E’s E + E + E = Value for money (VFM) • ECONOMY • The lowest cost of inputs • EFFICIENCY • The best use of inputs (processes) to create best output objective(s) • The protection of inputs (inc. cap. assets) • EFFECTIVENESS • The degree of achievement of objective (impacts) • The extent of compliance (‘rules’…)

  7. The 3 E’s - How? • ECONOMY • cost comparisons • EFFICIENCY • use of resources • optimisation of skills, materials, space… • EFFECTIVENESS fe… • the extent economies and efficiencies could enhance patients’ needs (or other objectives) for a hospital trust.

  8. Problems of VFM audit • Tendency to cost cutting • Tendency to short-termism • Where the ‘product’ is not one with an identifiable ‘market value’ the measurement of effectiveness and efficiency becomes difficult

  9. Homework • Read set text chapter 5 • Undertake the quick quiz and Q7 • For the tutorial • Prepare notes on the problems that might be encountered by outsourcing • Outline the differing nature of attribute, performance and implementation IA standards

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