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Value for Money Auditing Back  
Aidan Horan argues that value for money audits are an important element in the strategic management of organisations.
As individuals who purchase goods and services, we sometimes ask ourselves ‘did we get good value in the transaction?’ or ‘are we happy with our transaction in terms of the costs incurred and the benefits derived?’

Similarly as taxpayers, as shareholders, as contributors of funds to community charitable or sporting organisations, we may also consider the costs and the benefits derived. In the case of public service organisations we would like to see and have evidence that the services and activities have yielded the maximum societal benefit and that public money has been spent economically, efficiently and effectively.

In the case of companies we would like to see that the investment made has increased shareholder value, whether in terms of profitability or longer-term capital appreciation.

Value for money audit
Value for money reviews and audits focus on organisational and management performance. Being subjected to a value for money Audit can sometimes be uncomfortable as it challenges the way in which activities are carried out and possibly the organisational culture. The discipline of value for money reviews has a number of benefits for an organisation. It facilitates and promotes better strategic and operational decision-making, clarifies management responsibility and accountability, allows assessments of the achievement of objectives, promotes better use of resources and highlights the importance of the customer or service user.

It is the responsibility of management at all levels in organisations to ensure that value for money and high level performance is achieved. Key areas which are normally examined as part of a value for money review include strategy and policy formulation, corporate and divisional objectives, business plans and performance targets, resource management and accountability arrangements and management and financial information systems. But who can help management discharge these responsibilities?

Internal Audit can proactively assist management with the assessment of performance. In addition some organisations may employ external consultancy advice in carrying out efficiency reviews, value for money audit and similar assessments. The report of the review group on auditing published in July 2000 has focussed on the role of non-audit services and other specialist consultancy fees payable by organisations and the potential impact of such service payments on the independence and objectivity of the external audit process.

The external audit of public sector organisations is carried out by the office of the Comptroller and Auditor General (C&AG) or the Local Government Audit Service (LGAS), both of which have been given a legislative remit to undertake value for money reviews in addition to their normal financial/probity/ regularity audit.

To date 53 Public Service value for money reports have been published covering diverse areas such as purchasing and procurement, debtor management, performance indicators and development initiatives.

Conducting an Audit
The selection of areas or services in which to conduct a value for money audit can sometimes be problematic. Therefore critical preliminary research is required to gain an understanding of the area and the operating environment. This research will facilitate a greater appreciation of the objectives and sub-objectives of the potential areas or services. The research should also clarify linkages and cause and effect relationships of inputs, outputs and outcomes which will inform the eventual terms of reference and scope for a value for money study. The next critical stage is the gathering and analysis of data.

The common data gathering techniques include:
• examination of file and documents, further detailed research, information and literature searches and reviews, focused customer and client surveys and questionnaires.
The most common data analysis techniques include:
• bench-marking; using customers or other stake holders in focus groups; and before and after studies which compare proposals with implementation.

Having gathered and analysed the data the auditor will be in a position to consider the resources consumed in terms of financial and unit costs, resource indicators, staff involvement and use of facilities, technology, equipment and infrastructure. The establishment of causal relationships and the corroboration of findings will allow the auditor to draw conclusions and make recommendations.

Types of VFM Reviews
A distinction is sometimes drawn between value for money reviews which are respectively Input based, Systems based or Output based.

Input: Input-based reviews are largely concerned with statistical analysis and comparisons including the use of performance indicators to evaluate economy and efficiency.

Systems: Systems-based reviews are largely concerned with the process of turning inputs into outputs. These reviews look at areas such as staffing levels and duties, organisation structures and procedures and activity levels. They may also help to answer issues raised by the input-based review.
Output: Output-based reviews are concerned with policy objectives, the activities to achieve these objectives and the use of performance indicators to measure the effectiveness of the policies.

The first two types of review are concerned with economy and efficiency. The third type of review is concerned with effectiveness.

The potential
Value for money studies to date have highlighted a number of methods which can improve economy and efficiency indicating the potential for reduced inputs costs. This potential exists specifically in the areas of payroll and non-pay material costs, reallocation or adjustment of inputs, performance review and comparative analysis, better quality management information to support decision making and devolution of responsibility and accountability for the management and deployment of resources.

Effectiveness improvement methods can include clearer specification of organisational and divisional objectives and targets, translation of policies into reasonable objectives to determine ultimate policy effects and deliverables, programmes of customer questionnaires, surveys and feedback mechanisms the agreement of outcome measures or proxies for outcome measures and regular benchmarking studies.

Public Service Reforms
The various Public management reforms and initiatives continue to emphasise the principles of value for money by incorporating.
• systems to review plans, progress and performance and to provide a basis for comparison within and without the organisation.
• frame-works and mechanisms to assist in the allocation and management of resources
• opportunities to demonstrate continuous qualitative improvements in service delivery by focussing on outcomes and the processes required to achieve these outcomes.

Value for money audits can contribute significantly to improving performance, maximising the use of scarce resources and increasing accountability.

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