Value for Money Audit – Definition, Objective & More

Definition:

Value for money audit is an independent examination of an audit to assess whether the use of funds or resources is at the economy, efficiency, and effectiveness.

Auditors will assess the use of resources and funds against the intended objective, purpose, vision, and mission of projects, entities, or organizations.

This kind of audit service is normally engaged by non-profit organizations and the public sector. It is normally not engaged by the corporation.

However, some corporations require this kind of assessment because shareholders or owners want to assess agents (Managers or Directors of the Company) regarding the usage of their money.

In general, with this kind of audit engagement, auditors will assess the entity’s achievement in the economy, efficiency, and effectiveness. The following are the detail of this value-for-money audit:

Objective:

1) Economic:

The auditor will perform an audit assessment to assess whether the entity or organization uses the available resources or fund to acquire material, labor, or other resources for the projects in the economic principle or not.

It is expected that the projects should have written procurement policies and procedures that ensure that the procurement processes could perform in the best interest of the projects and that the minimum fund will spend on the acceptable quality and quantity of products.

If the procurement policy and procedure are in place, then auditors still have to assess if there is any loophole in the acquisition policy and procedure that could prevent projects from acquiring the material from the available fund. For example, no proper supplier selection process.

Related article  What is a Special Audit? Scope and Why is it require?

This could help them design the specific procedures that could target the suspected transactions.

Once the auditor completed their assessment process, auditors will review the actual acquisition transactions and assess if they are following the procurement policies.

For example, they will obtain and then select numbers of transactions base on their sampling technique and then review if the purchasing prices and quality are in the best interest.

The documents to be review including contracts, invoices, goods received noted, services delivery documents and etc.

Weakness and recommendations will be made to the audit report if the auditor finds out that the process acquires the material and equipment or others related not to the economic principle.

2) Effectiveness:

Effectiveness review, on the other hand, is focusing on the effectiveness of getting the desired output at the minimum resources.

For example, the effectiveness rate of one truck could collect ten square matter of trash in the city per hour. If the projects have one hundred trucks, then could the projects collect the trash at the same rate?

Also, auditors might also review if the currently available trucks could collect the trash in the city effectively compare to the same size of the city.

In case the auditor finds out that the usages of the truck are not at the effectiveness rate, then the auditor will raise the finding and then make the recommendation.

Therefore, effectiveness review, auditors’ review of the effectiveness of resources usage, and comparing output and input are one of the procedures that are normally used.

Related article  Integrate Audit: Definition, Example, and Explanation

3) Efficiency:

Efficiency is the review of the whole project and it is normally taking place at the end of the project’s period. The auditor will identify what is the objective of projects that they are reviewing, fund or resources, and output.

Normally, the combination of economics and efficiency will combine into efficiency. For example, the objective of the project is to have a clean city or smart city.

Then, the assessment will focus on whether this objective is achieved or not. Maybe auditors break down the objective into ten lists of items to be achieved for the projects and then assess the achievement of each item.