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Knowledge and Insights

Moving from “Great, an Audit” to a Great Audit

“Oh great, an audit!”

When the word audit is seen or heard by most people working in any type of organization, it usually invokes a negative response.  They view the term as an unpleasant event that may be disruptive or unsettling to their normal course of business.  To add to the displeasure, audits generally are performed to meet the needs of third parties, such as banks or regulators, and are not directly beneficial to the organization being audited.

One type of audit that can dispel this general belief is a performance audit.  Whether conducted as a proactive measure or part of a remediation plan, performance audits offer numerous benefits that will assist management in assessing their organization’s effectiveness, economy, efficiency, internal controls and compliance. At a minimum, a properly-planned and well-executed performance audit should provide organizations with the following benefits:

  • Cost savings;
  • Improved operational efficiencies;
  • Increased transparency; and
  • Independent oversight function with objective reporting.

In its simplest form, a performance audit compares actual output or results to a set of benchmarks or standards. The report discloses deviations objectively, as findings, and includes recommendations to address the deviation, or non-compliance, and improve performance.

Performance audits can incorporate financial or non-financial subject matter in accordance with management’s specific needs. The end goal is to provide an independent, objective assessment of an area of an organization that may need improvement or monitoring.

Performance audits may include numerous objectives, such as to:

  • Assess a program or operation’s effectiveness or efficiency;
  • Evaluate an entity’s compliance with laws, regulations, contracts or grant agreements;
  • Analyze costs of a process, operation, function or business segment; or
  • Gauge organizational achievements in comparison to established goals, desired output, or industry standards.

Performance audits are a useful instrument to ascertain the current level of execution and achievement of a program or operation.  They can be requested by management to be performed over their own organization or over a contracted third-party vendor providing a service on management’s behalf.

Traditionally, performance audits are most common in the government sector. The primary standard for government performance audits is Government Auditing Standards (GAS), issued by the Comptroller General of the United States and the U.S. Government Accountability Office (GAO).  Performance audits, however, are not only a useful mechanism for government agencies and authorities, but are beneficial to all organizations, from public and private corporations and from nonprofit to for-profit entities.  These types of businesses and organizations should really consider the benefits and value of a performance audit.

Mercadien has extensive knowledge and experience conducting performance audits under GAS and can assist your organization in understanding the process and benefits. For more information on how we can help, please contact me at (609) 689-9700 or dsullivan@mercadien.com.

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