Program budgeting is a type of budgeting that groups expenditures with related policy objectives1. It shows the detailed costs and revenues of every activity or program that is to be carried out with a given budget. It was first introduced by U.S. president Lyndon Johnson in 19494. It is meaningful to the government and the public because it shows how public services are delivered and aligned with government priorities
Value for money has been defined as a utility derived from every purchase or every sum of money spent. Value for money is based not only on the minimum purchase price (economy) but also on the maximum efficiency and effectiveness of the purchase.
The concept of Value for Money (VfM) in everyday life is easily understood as “not paying more for a good or service than its quality or availability justify”. In relation to public spending, it implies a concern with economy (cost minimization), efficiency (output maximization) and effectiveness (full attainment of the intended results). It must also support the value of equity.
VFM is an audit examination designed to determine whether the organization in question is performing economically, efficiently, and effectively in its use of resources, operating procedures, and in pursuit of objectives.
Performance auditing is an important way for taxpayers, financiers, Members of Parliament, ordinary citizens and the media to obtain insight into the running and outcome of different government activities.
Performance auditing is independent of the government ministries whose activities are subject to the audit. In this way, an independent and alternative view of the performance of the auditee is obtained. The performance audit does not represent any vested interest and has no ties, financial or otherwise, with the auditee.
In a perfect market the customer choose the product and the company which give them the best deal. A successful company will make a profit and stay on the market. The companies that do not perform will not survive at the market. In a perfect market the companies needs to improve their product and their price all the time to be able to stay alive. In government there is not any market mechanisms therefore there is a need for performance audit as a substitution for market mechanism.
Accountability is a difficult term.
For many, the concept of accountability is limited to the accounting system or is thought of as a reporting obligation.
Other use accountability to mean broader concepts: how those entrusted with the powers of the State are held responsible for their actions.
The OECD in its work on accountability and control in member country governments uses accountability to mean the obligation of those entrusted with particular responsibilities to present an account of, and answer for, their execution.
Accountability can be interpreted as a means of making SAIs accountable to the “public” and to the Legislature for their performance and stewardship of public funds and assets.([1])
Accountability to public addressees:
the stewardship of assets and resources entrusted;
the financial performance, that is, the use of those assets and resources and the incurrence of liabilities in the delivery of services; and
non-financial aspects of performance, including accountability for the entity’s priorities and the quality of service.
[1] Transparency International, TI Source Book 2000, Confronting corruption: the elements of a national integrity system, 2000, p. 75.
Economy is concerned with minimising the cost of resources used for an activity having regard to appropriate quality i.e. doing things cheaply. It is concerned with the terms and conditions under which financial, human and material resources are acquired.
Please note that the cheapest is not necessarily the most economic, because also quality has to be taken into account.
Economic resources are the inputs we use to produce goods and services. Economic resources can be divided into four categories: labour, land or natural resources, capital, and entrepreneurship (entrepreneurial ability). Labour refers to human effort and talent. Natural resources are resources, such as land, oil, and water. Capital refers to man-made equipment like machinery, buildings, or computers. Finally, entrepreneurship involves the effort and know-how to put all the other resources together.
Effectiveness: Is the right thing being done?
Efficiency: Is the right method being used?
Relationship: Sometimes there is effectiveness, but not efficiency. Government may be doing the right thing, but in a very costly way.
Effectiveness: Is the right thing being done?
Efficiency: Is the right method being used?
Relationship: Sometimes there is effectiveness, but not efficiency. Government may be doing the right thing, but in a very costly way.
Challenges of efficiency
The costs / resources available are difficult to link to certain products
The budgets may not be allocated to the relevant section or area. Relevant activities may be only part of what the section or organisation is doing, but the budget is not separated into these lines.
Possible solution: try to collect your own data on resources / input. F. inst. Make estimates on the cost by counting the number of staff and making overhead costs.
Quality matters. Does it make sense to measure unit costs if we do not know how the quality is? Many inspections of schools? Malaria brochures etc.
Improving efficiency can take place either by reducing costs as long as quality remains unaffected, or by increasing quality but keeping the costs at the same level. Be aware of the quality.
assume similar quality if reasonable
investigate quality
Quantification and isolation of effectiveness
indirect measure by the chain of effects
try to take into account external factors
Effectiveness is not always easy to measure. Indirect approach is to establish preconditions for effectiveness that are more measurable.
Note that high quality of output increase the likelihood of effectiveness.
Malaria case:
People will:
Notice there is a brochure
Read the brochure – have people noticed?
Acquire more knowledge about malaria – have people read it?
Change attitudes to malaria – compare people’s knowledge before and after
Change behaviour – compare people’s behaviour before and after
Number of malaria cases will decrease – count number of malaria cases
Challenges of efficiency
The costs / resources available are difficult to link to certain products
The budgets may not be allocated to the relevant section or area. Relevant activities may be only part of what the section or organisation is doing, but the budget is not separated into these lines.
Possible solution: try to collect your own data on resources / input. F. inst. Make estimates on the cost by counting the number of staff and making overhead costs.
Quality matters. Does it make sense to measure unit costs if we do not know how the quality is? Many inspections of shools? Malaria brochures etc.
Improving efficiency can take place either by reducing costs as long as quality remains unaffected, or by increasing quality but keeping the costs at the same level. Be aware of the quality.
assume similar quality if reasonable
investigate quality
Quantification and isolation of effectiveness
indirect measure by the chain of effects
try to take into account external factors
Effectiveness is not always easy to measure. Indirect approach is to establish preconditions for effectiveness that are more measurable.
Note that high quality of output increase the likelihood of effectiveness.
Malaria case:
People will:
Notice there is a brochure
Read the brochure – have people noticed?
Acquire more knowledge about malaria – have people read it?
Change attitudes to malaria – compare people’s knowledge before and after
Change behaviour – compare people’s behaviour before and after
Number of malaria cases will decrease – count number of malaria cases
Effectiveness is the relationship between intended and actual effect/impact i.e. the extent to which the organisations goals (the purpose of its existence) have been achieved doing. This is often popularly referred to as doing the right thing. The concept AFROSAI-E uses also take the use of resources into consideration – meaning that goals for the intended effects should be achieved at the lowest cost.
Effectiveness: Is the right thing being done?
Efficiency: Is the right method being used?
Relationship: Sometimes there is effectiveness, but not efficiency. Government may be doing the right thing, but in a very costly way.
In this figure input refers to the financial, human, and material resources used for a government intervention (government undertaking, policy, system, operation, programme, activity or organisation). Output refers to the products, capital goods and services which result from a government intervention. Outcome refers to the likely or achieved effects of an intervention’s outputs. These can be short-term, midterm or even long-term (long term effects can also be referred to as ‘impacts’).
