performance audit with enhancing effectiveness of collecting and spending toll fee

Introduction 1. The necessaries of the topic. Performance audit is a type of audit which has been developed in the world recently. The development was started in 1970s of the XX century in the public area and then spread to the private sector. In the U.S., Canada and some European countries such as Sweden, Germany members of parliaments in these countries required to provide information on the effectiveness and efficiency of spending of funds. They did not satisfy with the traditional audit- that only focused on the compliance with the regulations on expenditures. They want to know if the "value for money" has been implemented only for the funds. They also want the people who have responsible for revenue, public expenditure management the public funds to explain more for that. The public request has created challenges to State auditors who must try to respond by expanding the scope of their activities. Therefore, they started implementing performance audit, then in that countries the audit law and other laws related were issued, in which the state auditor and the internal auditor must consider for the value of money when implement audit by themselves. In Vietnam, the concept of "performance audit" is only known in the early years of the 90 decade through documents from foreign countries. Until now, the number of people who have good knowledge and have conditions to apply and practice performance audit is limited as compared to the financial audit. The State Audit was established to improve the effectiveness of macro- management of the government in collecting and using resources of the country. Until now, the State Audit has implemented many specific activities. In the past years it has contributed to clean up the national finance, increased the national budget income and reduced the national budget spending thousands billion dongs. Currently in the implementation tasks process, audit activities mainly focus on financial audit and compliance audit, but what happened to our country has shown the status of public resources wasted in the using national budget. Following the general trend, we started implementing performance audit to remove that situation. So far, Performance audit has officially implemented in the "Audit of Collecting and spending toll fee". Although it has good results, some weaknesses remain. Therefore, the research “Performance audit with enhancing effectiveness of Collecting and spending toll fee” is selected for in-depth study. 1 2. Research purposes Based on analyzing performance audit and practices of the "Audit of Collecting and spending toll fee" of the State Audit of Vietnam, the thesis proposes recommendations to enhance effectiveness of performance audit of Collecting and spending toll fee. 3. Research objectives and scope Performance audit is new from both theoretical and practical perspectives, because it just has occurred in a short time. Therefore, we focus on main issues of performance audit and audit process in our country now. The objectives of the research are: - To give an overview of performance audit and forming the scientific basis for implementing performance Audit. - To introduce requirements of "Collecting and spending toll fee audit" and describing how State Audit of Vietnam did it - To describe and analyze issues about performance audit in "Collecting and spending toll fee audit”. - To assess the practice described and suggest, solutions and petitions to improve the performance audit with regard to collecting and spending toll fee. - To suggest some recommendations to enhance performance audit in State Audit of Vietnam. 4. Research methodology. In order to meet research objectives, literature survey, interview and sending questionnaires were used to collect information and data. Secondary data: Secondary data have been collected from various sources including. Audit textbooks and curriculums, legal documents are available to take information such as definition, the necessary, the objective of performance audit, professional requirements for performance audit. These documents were promulgated by Vietnamese authorities such as National Economic University, Finance Academy, Vietnamese Government, State Audit of Vietnam, Ministry of Finance, Vietnamese Association of Certified Public Accountant and Foreign authorities such as INTOSAI, ASOSAI, EC project, GTZ project; 2 Literature survey was used to collect information related to the State Audit of Vietnam, Collecting and spending toll fee audit report, audit works, audit files, etc… Primary data: Primary data were collected by using techniques of interviewing and sending questionnaires. Interview: This technique was done for collecting primary data. There are 7 in depth interviews including interview the head of Major 2 department (State Audit of Vietnam), team leader of Collecting and spending toll fee audit team, 3 auditors in charge about audit works. Questionnaires: this tool was used by sending question to leaders of audit association, audit team leaders, auditors, leaders and staffs of audited bodies. The questionnaire was originally made in Vietnamese and later was translated into English. The questionnaires are included in appendix of this thesis. The quantitative surveys were completed with 36 questionnaires sending to leaders of audit association, audit team leaders, auditors, leaders and staffs of audited bodies. 5. Research Structure This study consists of 3 chapters with brief bellows Chapter I: The theoretical framework of performance audit This chapter presents the picture of theoretical frameworks related to performance audit with the basic concepts of performance audit, performance audit criteria, process of performance audit and introduce about performance audit in other countries. Chapter II: Real situation of Collecting and spending toll fee audit This chapter give an overview of performance audit and describes Collecting and spending toll fee audit. Specifically, the chapter mentions requirements and the score of the State audit in implement performance audit; describes real situation of Collecting and spending toll fee audit and gives Audit findings. Chapter III: Recommendations and Conclusion. This chapter proposes numbers of recommendations to enhance effectiveness of collecting and spending toll fee, then enhance performance audit and improving decisions, regulations of the state-audit Law. 3 Chapter 1: The theoretical framework of performance audit 1.1The basic concepts of performance audit 1.1.1 Introduction of performance audit Bringing audit into the world, internal or external audit is to serve for efficient management of economy sources. The reality of economy sources management shows that, there is so important to evaluate about honest and legality of unit’s finance information but in the reality, it’s not enough to satisfy all the demand of managers. There is a new type of audit appear in public. It is performance audit. Performance audit is a type of auditing, which appears later than financial audit. It arisen because of higher demand of efficient management of resources. Performance audit is implemented primarily by State Audit and Internal audit. Performance audit organized and implemented base on extending and developing functions of finance report auditing. So took shape base on extending and developing the professional methods, audit activities organizing, processing, etc… of finance report auditing and develop an audit function of audit organizations. Difference of tradition audit (financial audit), performance audit is a new audit type, its objectives, contents are multiform; depend on quality, objective, operation areas, economy manage developing of audit object. So performance audit is a complicated audit field and being developed. 1.1.2 Definition of performance audit The term “Audit” includes financial audit, compliance audit and performance audit include definite of good textbook. It further adds that in pursuance of the constitutional responsibility, The SAI is empowered to decide the nature, scope, extent and quantum of audit to be conducted by it or on its behalf. INTOSAI Audit standard 1.0.40 defines the performance audit as under: “Performance audit is concerned with the audit of economy, efficiency and effectiveness and includes: Audit of the economy of the administrative activities in accordance with sound administrative principles and management policies; 4 Audit of the efficiency of utilization of human, financial and other resources, including examination of information systems, performance measures and monitoring arrangements and procedures followed by audited entities for remedying identified deficiencies; Audit of the effectiveness of performance in relation to the achievement of the objectiveness of the audited entity and audit of the actual impact of activities compared with the intended impact.” Performance auditing is an independent assessment or examination of the extent to which an entity, program or organization operates efficiently and effectively, which due regard to economy. In practice, there can be an overlap between compliance and performance auditing and in such a cases, classification of a particular audit will depend on the primary purpose of that audit. Compliance audit embraces attestation of financial accountability involving expression of opinion on financial statements, audit of financial systems and transactions, including an evaluation of compliance with applicable statues and regulations, audit of internal control and internal audit functions and audit of probity and propriety of administrative decisions taken within the audited entity. Public sector performance auditing is a way for taxpayers, financiers, legislatures, executives, ordinary citizens and the media to obtain information about the running and outcome of different government operations. Performance auditing also provides answers to questions such as do citizens get value for money, or is it possible to spend the money better or more wisely. Public sector performance audit tends to be of two types: Those where the State Audit Office examines how government ministries are managing and evaluating their own operations to ensure that they achieve economy, efficiency and effectiveness; Those where the State Audit Office directly evaluates whether economy, efficiency or effectiveness have been achieved by government ministries. 1.1.3 Features of performance audit As stated in the Auditing Standards of INTOSAI, performance auditing is not overly subject to specific requirements and expectations. While financial auditing tends to apply relatively fixed standards, performance auditing is more flexible in its choice of subjects, audit objects, methods, and opinions. Performance auditing is not a regular audit with formalized opinions, and it does not have its roots in private 5 auditing. It is an independent examination made on a nonrecurring basis. It is by nature wide-ranging and open to judgments and interpretations. It must have at its disposal a wide selection of investigative and evaluative methods and operate from a quite different knowledge base to that of traditional auditing. It is not a checklist- based form of auditing. The special feature of performance auditing is due to the variety and complexity of questions relating to its work. Within its legal mandate, performance auditing must be free to examine all government’s activities from different perspectives. The character of performance auditing must not, of course, be taken as an argument for undermining collaboration between the two types of auditing. 1.1.4 Meaning of economy, effectiveness and efficiency in performance audit As stated above, performance auditing is mainly concerned with the examination of economic, efficiency, and effectiveness. According to the Auditing Standards (AS 1.0.40), an individual performance audit may have the objective of examining one or more of these three aspects. Figure 1.1: Meaning of economy, effectiveness and efficiency in performance audit (Source: Performance Audit Guide- EC project) Economy Economy Efficiency Effectiveness Minimizing Input costs and keeping right quality Increasing output for same input or reducing input for same output - at right quality Meeting or exceeding policy objectives and delivering intended impacts 6 Economy is minimizing the cost of resources used for an activity, having regard to the appropriate quality. Economy issues focus on the cost of the inputs and processes. Economy occurs where equal- quality resources are acquired at lower price, spending less. Judging economy in itself implies forming an opinion on the resources (human, financial and material) deployed. The central question is to assess whether- given the context- resources have been acquired, upheld and used economically. The question to be asked by a performance auditor is, do the means chosen represent the most or at least a reasonable economical use of public funds? Efficiency Efficiency is relationship between the outputs, in terms of goods, services or other results and the resources use to produce them. Efficiency is where the use of any given set of resources inputs, or input is minimized for any given quantity and quality of output, spending well. The main question related to efficiency is whether the resources have been put to an optimal or satisfactory use or whether the same or similar results in terms of quality and turn- around time could have been achieved with fewer resources. The question refers to the relationship between the quality and quantity of goods and services yielded and the cost of resources used to product them, in order the results achieved. A finding on efficiency can be formulated by means of a comparison with similar activities, with other period or with a standard, which the entity has explicitly adopted, sometimes, standards such as best practices are applicable. Assessments on efficiency might also be based on condition which related to specific standard, when matters are so complex that are no standards. In such case, assessment must be based on the best available information and arguments and in compliance with the analysis carried out in the audit. Effectiveness Effectiveness is the extent to which objectives and achieved the relationship between the intended impact and the actual impact of an activity. Effectiveness addresses the issue of whether the program/ activity has achieved its objectives, spending wisely. When focus on effectiveness, it is important to distinguish between the immediate outputs or products and the ultimate impacts or outcomes. Effectiveness is achieved, for instance, where there is improved achievement of a program’s objectives. Outcomes are important to the effectiveness of program/ 7 activities but may be difficult to measure and assess than the inputs and outputs. Outcomes will often be influenced by external factors and many required long- term rather than short- term assessment. Effectiveness is essentially a goal- attainment concept. It is concerned with the relationship between the objectives set up. Outputs provided and objectives met. Some of the questions to ask in effectiveness assessment are. A the objectives of the policy being employed and the results achieved consistent with the objectives of the policy and- perhaps the most difficult- are the impacts really the results of the policy rather than other circumstance? The last ones may be difficult to establish in most cases and will call for a caution approach. Performance auditor may come across situation where the inputs stated to have been used and outputs states to have been derived are not correctly stated. Unless the correctness of inputs and outputs are validated with the help of appropriated audit test, the evaluation of efficiency may be yielded incorrect results. It is, therefore incumbent upon the performance auditor to verify correctness of the reported data of “inputs” and “outputs” while applying the test of efficiency. For example, the money stated to have been utilized on a program might not be used entirely on the program. Part of the inputs may have been used on other items, part could be unutilized in the form of deposits, another part could be advances to vendors, analyzing of inputs, particular the financial inputs with the help of a finance inverse free may establish the resources actually utilized for the program. Similar analysis for other inputs and all outputs may be necessary to carry out an accurate analysis for efficiency. 1.1.5 Differences between Performance Audit and Financial Audit It is possible that both financial audit and performance audit might cover the same audit area e.g. controls over debt management systems or systems to prevent fraud. In practice the type of audit being undertaken is determined by its fundamental objective i.e.: If the main objective of the audit is to check that controls are working satisfactorily, than it is financial audit; If the main objective of the audit is to answer questions about economy efficiency or effectiveness, then it is performance audit. Another way to decide if an audit is a performance audit is to look at the questions the audit is trying to answer. Performance audit usually tries to answer two basic questions:  Are things being done in the right way? 8  Are the right things being done? 1.1.6 Influence of public management to performance auditing The form of public management employed will necessarily influence priorities in performance auditing. In countries where public management is mainly concerned with means and less involved with ends, audits also tend to focus on whether rules have been observed and enforced rather than whether the rules serve or are seen to serve their intended purpose. In countries that have acknowledged management by objectives and results, the audit focus is different. Public sector management generally displays a combination of these philosophies. As mentioned above, management by objectives and results tends to promote interest in auditing efficiency and effectiveness. As a result, the auditor might not have to confront a traditional, rule-bound government administration but an administration whose mandate has been widened considerably in terms of how the intentions of the legislature should be put into operation and which means should be employed in order to achieve them. Typically, following questions would be of interest to a performance auditor: Is there a clear structure of performance goals and have the appropriate priorities and instruments been chosen for the use of public funds? Is there a clear distribution of responsibility between the different levels of authority, bearing in mind the principle of subsidization? Is there a general cost awareness and an orientation towards production of services, putting citizens’ needs in focus? Is there an adequate emphasis on management controls and reporting requirements? Ministries and their subordinate bodies are responsible for ensuring that good internal control routines are established. In this context, it is the particular task of the performance auditor to keep an eye on whether this responsibility has been properly taken care of. The extent to which it has in fact also been observed by the auditor or the auditors in their operations is for the financial auditor to judge. In addition, a common objective of most governments today is to improve the quality of public services, particularly as people’s expectations (often with reference to the service they receive from the private sector) of what constitutes quality continue to increase. To promote improvements of this type, many governments have embarked on modernization programs to deliver better services that are, for instance, 9 more easily accessible and convenient, provide citizens with more choice, and are delivered more quickly. The quality of public services is an increasingly important issue, which members of parliaments and governments across the world expect the SAIs to address in their performance audit reports. Relationship between performance auditing and performance measurement and program evaluation Both the executive branch and the legislature need evaluated information to help them make decisions about the programs they are responsible for this information tells them whether, and in what important ways, a government undertaking or program is working well or poorly, and why. Many analytical approaches have been employed over the years by agencies and others to assess the operations and results of government programs, policies, activities, and organizations. Performance audit and evaluation studies are designed to judge how specific programs are working and may differ a great deal. One particular aspect is the relationship between performance measurement, program evaluation, and performance auditing. Performance measurement Performance measurement normally means the ongoing process of monitoring and reporting on program accomplishments, particularly progress towards pre- established goals. Performance measures may address the type or level of program activities conducted (process), the direct products and services delivered by a program (outputs), and/or the results of those outputs (outcomes). Performance measurement focuses on whether a program has achieved its objectives or requirements, expressed as measurable performance standards. Performance measurement, because of its ongoing nature, can serve as an early warning system to management and as a vehicle for improving accountability to the public. The ongoing process of ensuring that a government program or body has met the targets set is a matter of internal management and control, not a task for external auditors. It is the responsibility of the financial auditors – not the performance auditors – to confirm that the accounts are correct. However, in the area of performance measurement – the check on the quality of performance-related information produced by the executive branch for the legislature – both financial and performance auditors might be involved, either in separate activities or in joint audits.11 Performance indicators can sometimes also be used as indicators or references in planning individual performance audits. One topic for performance auditing is whether performance measurement systems in government programs are efficient and effective. For 10 [...]... regulations and process of performance audit The State Audit of Vietnam hasn’t implemented any performance audit independently The Collecting and spending toll fee audit is a combination of financial audit and performance audit So, the research of Collecting and spending toll fee audit to improve performance audit process, enhancing effectiveness of Collecting and spending toll fee audit to develop performance. .. Evaluation of the economy of human resources management in Collecting toll fee - Evaluation of the efficiency in achieving the target management 36 2.3 Real situation of Collecting and spending toll fee audit 2.3.1 Preparation of collecting and spending toll fee audit Collecting data Firstly, the leaders of Collecting and spending toll fee audit association have to setup general audit team The general audit. .. for effectiveness auditing that takes the government undertaking, i.e., the ultimate effects that the public program/agency is intended to bring about, as its point of departure Chapter 2: Real situation of Collecting and spending toll fee audit 2.1 An overview of performance audit and objectives of the State Audit of Vietnam in implementation of the performance audit 2.1.1 Objectives of State Audit of. .. causes which base of performance audit comments and performance audit s petitions Two type of performance audit criteria have relation of identify That criteria are beginning to take shape in audit preparative process and step by step completed and improved in audit implementation process 1.3 Process of performance audit 1.3 Preparation of performance audit 16 The approach to performance audit planning... performance audit is necessary 2.2 Requirements and objectives of Collecting and spending toll fee audit When building the audit plan, many meetings, and conversations were organized Audit association leader, audit team leader, experts are all unanimous are bout the audit objectives They were specified as bellow: - Evaluation the economy, effectiveness and efficiency of Collecting and spending toll fee -... suitable with the auditing demand at the end of period 2005- 2015 Expanding Performance audit in State Audit of Vietnam is an objective demand to develop fully the State Audit of Vietnam’s role in social and economic development process At the same time, it brings about the responsibility for State Audit of Vietnam to innovate the auditing method 2.1.2 Real situation of performance audit of State Audit of. .. criteria 1.2 Basic concepts of performance audit criteria Performance audit criteria are standards which are rational and able to reach about economy, effectiveness and efficiency So, performance audit criteria gather all standards in management, using economic resources of audited unit’s activities Auditors have to collect all of it to evaluate economy, effectiveness and efficiency of audited unit’s activities... suitable for the target of the audit; Standards for performance audit evaluation is quantitative factor about using and spending economic resources for audited unit’s activities Performance audit criteria have to build on suitable area, suitable trade and suitable audited bodies 2.2 Role of performance audit criteria Audit criteria are reasonable and attainable standards of performance against which... criteria are base of conclusions about economy, effectiveness and efficiency in economic resources management of audited bodies Specific criteria: are all of criteria which are used to evaluate each of content, each of factors, each of performance in audited unit’s activities Specific criteria are general base of auditor’s comment and auditor’s evaluation about each of content, each of performance, judge... implement performance audit, the State Audit of Vietnam needs to prepare necessary factors for implementing and setting up professional method; training and developing auditors and chief of auditor group, developing and applying advanced IT into performance audit Besides, it is necessary to set up a suitable implementation road, basis of summarizing practical experience and developing performance audit . purposes Based on analyzing performance audit and practices of the " ;Audit of Collecting and spending toll fee& quot; of the State Audit of Vietnam, the thesis. requirements and the score of the State audit in implement performance audit; describes real situation of Collecting and spending toll fee audit and gives Audit