What is a value for money audit?
A value for money audit is an independent assessment to determine if the use of resources or funds is economical, efficient and effective in a project or an entity. Auditors will evaluate the utilisation of resources and funds in relation to the intended purpose or the organisation’s vision and mission.
This type of audit service is typically used by non-profit organisations and the public sector. However, some corporations require this kind of assessment because shareholders or owners want to assess agents, i.e., managers or directors of the corporation, regarding the usages of their money.
A value for money assessment would typically look at corporate and divisional objectives, strategy and policy creation, business plans and performance targets, resource management and accountability structures, and management and financial information systems.
Being subjected to a value for money audit may be unsettling at times since it calls into question how processes are performed and, in some cases, the organizational culture.
However, an entity can benefit from having value for money evaluations in a variety of ways. It defines management duty and accountability, encourages and helps formulate improved strategic and operational decision-making, promotes better resource use, enables objective achievement evaluations, and emphasizes the significance of the customer.
How is a value for money audit performed?
Choosing the services or areas for a value for money audit might be difficult at times. As a result, an extensive preparatory study is necessary to understand the area and its operational environment.
This study will aid in gaining a better understanding of the objectives and sub-objectives of the services and areas that have potentials. The study should also explain the links between inputs, outputs, and outcomes, influencing the final scope and terms of reference of a value for money audit.
The next crucial stage is the collection of data and data analysis.
The auditor will be able to examine the resources utilised in terms of resource indicators, staff engagement, financial and unit expenses, and usage of facilities, technology, equipment, and infrastructure after collecting and analysing the data.
The auditor will be able to draw conclusions and offer recommendations after establishing causal linkages and verification of results.
Why is value for money audit important?
1) Assesses the economical side
It allows the entity or organisation to determine whether or not the entity or organisation used available resources or funds to buy labor, material, or other resources for projects following the economic principles through an audit assessment conducted by the audit professionals.
It is anticipated that the projects would have in place clear procurement policies and procedures in writing to guarantee that the procurement processes work in the best interests of the projects and that the least amount of money is spent on acceptable quantity and quality of products.
If the procurement policy and process are in place, auditors must still determine whether there are any gaps in the procurement policy and procedure that might hinder projects from obtaining the materials it needs from available funds. For example, whether or not there is a proper supplier selection procedure in place.
Following the completion of the audit procedures, auditors will evaluate the actual purchase transactions to determine compliance with procurement regulations.
They will, for instance, collect and then choose several transactions based on their sampling approach, after which they will assess if the purchase prices and quality obtained are in the organisation’s best interests.
Invoices, contracts, goods received notes, delivery orders, service delivery notes, and other documents are examples of the documents that the auditors might review.
If the auditor discovers that the process to procure material and equipment is not in adherence to the economic principle, they will highlight the weaknesses identified and suggest improvements in their final audit report to the auditee.
2) Determines if the project is efficient
Efficiency is an evaluation of the entire project that usually happens at the end of the project. The auditor will first determine the funding, resources, outputs and goals of the projects they are evaluating.
Then, the auditor will carry out an assessment that focuses on whether or not all these items (funding, resources, outputs and goals) were met. To audit more efficiently, the auditors might create a few lists that break down the items to be completed for each project and then analyse the completion of each item based on the lists.
3) Evaluates the effectiveness
On the other side of the coin, the effectiveness evaluation is concerned with how effective the entity or organization is in achieving its intended outcome while utilizing the fewest resources.
For instance, one rider’s effectiveness rate is to deliver five food orders to five different customers in one hour. Can the entity still have the same capacity to deliver food orders at the same rate if they have 50 riders?
Additionally, auditors may examine if the riders can deliver orders effectively to the customers under different weather conditions, i.e., whether it is snowing, sunny or raining.
If the auditor discovers that the riders are not performing at an effective rate, the auditor will raise the issue as an audit finding and then suggest ways to manage improvements.
As a result, by comparing input and output, the auditors can easily assess the effectiveness of resource usages.
A value for money audit is useful in identifying a variety of ways that can enhance economy, efficiency and effectiveness as well as suggesting the possibility for lower input prices.
This is particularly important for entities aiming to improve their spending patterns and lower costs in areas such as purchase costs and administrative expenses.
It can also facilitate comparative analysis, allow a better decision-making process and more efficient resource deployment since the management will now be equipped with higher quality management information.
Clearer specification of the entity’s visions and missions will ensure they get translated into more reasonable objectives, which will affect the ultimate policy and deliverables, which contribute greatly to the entity’s sustainability.