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Performance Audit: Definition & Measurement

Instructor: Brianna Whiting

Brianna has a masters of education in educational leadership, a DBA business management, and a BS in animal science.

Like many of us, the government wants to be good at their job. In order to make improvements and be more productive, the government often relies on audits. In this lesson we will learn about an important audit that they use known as a performance audit.

Performance Audits

Meet Megan! Megan has enrolled in a college course in which she must write a paper about performance audits. Because this is a topic she is unfamiliar with, Megan knows she will have to do a lot of research. You see, Megan has to be able to explain not only what a performance audit is, but how it is measured. Come along with Megan as she prepares for her paper.

What is a Performance Audit?

Before she can begin writing her paper, she needs to know what a performance audit is. A performance audit is a way for government employees to understand how well they are doing in terms of their performance so that they can make informed decisions about their practices. It is performed by a third party and seeks to understand if the operations and procedures are effectively keeping costs low, using resources efficiently, and meeting their objectives. So, basically, Megan now knows that a performance audit helps those individuals working for the government perform their jobs more effectively and make decisions where operations, resources and costs are concerned.

The 'Es' of a Performance Audit

One way to help Megan better understand a performance audit is to learn three of the most crucial elements of one. These three elements are often referred to as the three Es. Let's take a look at them now.

1. Economy- The first 'E' stands for economy. This is the act of trying to reduce costs and keep a manageable budget. A performance audit can recognize overlaps in services and duplicates which may be wasting money.

2. Efficiency- The government has access to many resources and part of the performance audit makes sure they are using their resources the best way possible. If not, the audit can help to point out ways to more efficiently use their resources.

3. Effectiveness- This is the 'E' that focuses on whether the operations are meeting objectives. Performance audits can be used to look at each separate department or they can look at the entire operation.

Measurements

So now Megan wonders, how are performance audits measured? After doing some research, she learns that there are a few ways to measure the quality and effectiveness of a performance audit.

Quality

Before you can measure if the performance audit was successful, the entity that is being audited needs to outline what is important to them. They need to understand what quality means to the organization. Why is quality important? How is quality measured? Well, Megan learns that quality can be measured by how many times an audit needs to be conducted. Is the entity constantly in need of an audit because their operations are not running smoothly? Once quality is defined, and it is determined how it can be measured, the entity can start to make improvements.

Team Skills

One way to measure the effectiveness of a performance audit is by understanding the skill sets of those performing the audit. Megan knows there are several questions that can help determine how capable the auditors are. How many years have they been doing audits? Do they understand how the entity operates and what is important to them?

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