Performance auditing: What is it?

At some point in recent accounting history, auditing grew from an examination of the fairness of financial statements to auditing the performance of management. The federal government, along with at least 16 states and numerous local governments, are either using or preparing to use performance audits.

But what is performance auditing? Sometimes known as an operational audit, program audit or management audit, Government Auditing Standards define a performance audit as:

...an objective and systematic examination of evidence for the purpose of providing an independent assessment of the performance of a government organization, program, activity or function in order to provide information to improve public accountability and facilitate decision-making...

The standards go on to say that performance audits include economy and efficiency and program audits. In short, performance audits identify ways government can work better and cost less. By taking a thorough, top-to-bottom look at every operation, performance audits measure economy and efficiency, effectiveness of services and then recommend appropriate changes. Performance audits uncover waste and fraud. Ultimately they change the way government works.

What does performance auditing mean to the practicing professional? Here are some definitions provided by leaders in government performance auditing:

Gerald R. Silva, CGFM, City Auditor, City of San Jose, California: "From a technical standpoint, performance auditing is compliance review with laws, ordinances, statutes and rules...and the three "E"s--economy, efficiency and effectiveness...But really a performance audit is an audit of management's performance."

Kurt Sjoberg, CGFM, State Auditor of California: "A performance audit is an independent evaluation of an organization's operation with an eye toward making it work better, faster and cheaper. Along with these streamlining efforts, a performance audit may also determine whether management is fulfilling its promises to the taxpayers by effectively providing the services intended to meet its goals and objectives."

Francis E. Reardon, CGFM, Auditor General, US Army: "A performance audit is a detailed examination and evaluation of the efficiency effectiveness and propriety of an entity's operation...with the goal of providing management with real-time recommendations and assistance that improves operations and processes while saving taxpayers dollars..."

Some of the questions a performance auditor might answer are:

What is the mission of the activity? Is it still needed?

Is management achieving its mission?

How does it know it is...