FOCUS ON THE THREE E'S: Embedding value-for-money auditing in work processes can ensure economy, effectiveness, and efficiency are achieved.

Author:Balkaran, Lal
Position:Back to Basics
 
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Although developed in and long associated with the public sector, the concept of value-for-money (VFM) auditing is finding increasing interest and application in the private sector. These organizations realize the true power and range of value VFM audits generate. Understanding this approach can help position internal auditors to exceed stakeholders' expectations. For example, VFM audits can enable resources to be acquired at optimal cost without jeopardizing quality and performance, unearth inefficiencies, and identify ineffective operations. Along the way, it also can help identify irregularities or potential indicators of fraud--all culminating in business improvements.

VFM auditing is embodied in Standard 2100: Nature of Work, which states, "The internal audit activity must evaluate and contribute to the improvement of the organization's governance, risk management, and control processes using a systematic, disciplined, and risk-based approach. Internal audit credibility and value are enhanced when auditors are proactive and their evaluations offer new insights and consider future impact."

Conforming to this standard requires a thorough understanding of the risks, governance structures, and control activities associated with improving business operations. This leads to assessing the acquisition of resources, evaluating business functions, and maximizing the achievement of goals--the very foundation of VFM audits. This foundation focuses on the three E's: economy, efficiency, and effectiveness.

The VFM auditor asks: Are the right operations being performed to achieve the objectives of the unit (effectiveness) in the right way (efficiency) at an appropriate cost (economical use of resources or economy)? Answering such questions involves assessing an appropriate range of performance measurement criteria. For instance, if procurement is not acquiring goods and services at the right prices in the right amount and on schedule, then it is not effective because it is not achieving its goals. VFM audits can be applied to any business function such as finance, procurement, human resources, and marketing, as well as to any industry.

When performing a VFM audit, the auditor must possess a multitude of skills; be multidisciplined; let go of the financial statement audit mindset; be able to think outside of the box; ask challenging questions; be persistent and question the validity of information; and be able to work as a team player with subject...

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