Performance management audit

1. Performance management audit
Introduction
In these difficult times for public sector finances, internal audit and the audit committee
have an important role to play in ensuring continuing management effectiveness. Despite
budget cuts and reduced staff numbers, management must ensure that controls continue
to be effective, risks are managed and standards of corporate governance remain high.
Internal audit must respond to these challenges by maintaining a robust, independent and
objective stance and ensuring audit work focuses on what is most important in the
organisation.
Strategic alignment
Internal audit must focus on those activities that contribute to the achievement of the
organisation's strategic objectives. Internal audit should have its own strategic plan that is
aligned with the organisation's strategy, while being flexible enough to take account of
changing priorities and circumstances. The strategic audit plan should aim to cover all
key strategic risks.
Focus on risk
Every public sector organisation should conduct regular risk assessments to ensure that
risks to the achievement of its strategic objectives are identified and managed. Internal
audit plans and work programmes must take these risks into account and be capable of
responding to emerging risks. In addition, it is essential to audit the organisation's risk
management process to ensure that it continues to identify changes in the risk profile of
the organisation. An audit of the risk management process will also help to ensure that
that all parts of the organisation have a common understanding of risk.
Promote continuous improvement
There are two aspects to the promotion of continuous improvement, the first in relation to
the internal audit function itself and the second in relation to the organisation. Internal
audit should continuously improve its own capabilities through ongoing review of its
performance, providing training to staff, and conducting quality assessments and peer
reviews. Periodically, an independent external quality assessment should be conducted to
gain an objective view of how internal audit is performing against internal audit
standards. The performance and role of the audit committee should be included in these
reviews, the results of which should be used as benchmarks for further improvement
objectives.
As audits are carried out over time, internal audit should observe trends that emerge in
the organisation and not simply view each audit in isolation. Trends might point to
deficiencies in the performance of the organisation that management needs to address.
For example, if a number of audit investigations point to weaknesses in, say,
procurement, management might be advised to examine procurement at an organisational

2. level and fix the process, not just the specific weaknesses identified in an individual
audit. In this way, the audit function can contribute to overall performance improvement
and add value to the organisation.
Manage relationships effectively
The influence of internal audit and of the audit committee is critical to the success of the
function. The relationship between the Audit Chair and the Head of Internal Audit should
be strong so that the audit function has the independent support required to succeed. The
Audit Chair should meet the Chief Executive regularly, perhaps after every audit
committee meeting. The committee should be kept informed of key developments in the
organisation so that it can take these into account, where relevant, in reaching its
decisions. Good relationships are also essential with line management so that audit
findings and recommendations are accepted and acted upon. Client satisfaction surveys
are useful tools to use after an audit to ensure that the client has an opportunity to give
feedback on the audit process and deal with any difficulties that may have arisen.
Value for money
Every public sector organisation should strive to achieve the best value for money in
carrying out its functions. The means by which this can be achieved are now well
documented. Internal audit should consider where opportunities arise to conduct value for
money audits and should include these in its annual audit plan. The results of value for
money audits, in particular, can help to inform management whether the organisation is
achieving its strategic objectives and whether actions are required to mitigate risks.
Conclusion
An effective internal audit function can help to promote a frame of mind in the
organisation that focuses on risk, controls and the achievement of value for money. This,
in turn, can help the organisation to improve its performance and management
effectiveness and increase the likelihood of achieving its strategic objectives.
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