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Introduction to Public Administration

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Introduction To Public Administration­MGT111
VU
LESSON 31
AUDIT
At the end of lecture the students will be able to:
-  Understand the concept of audit and audit in government
-  Understand the concept of Performance Audit
-  Understand Audit as control tool
Audit is a specialized area of financial management and control. Their instruments of control are
governments rules, regulations and procedures which must adhered to when making financial transactions.
Definitions of Audit
Following are some of the definitions of audit:
It is an examination and verification of a company's financial and accounting records and
supporting documents by a professional,
It is a formal examination of an organization's accounts or financial situation. An audit may also
include examination of compliance with applicable award terms, laws, regulations and policies after
transactions are made.
It is the examination of some or all of the following items: documents, records, reports, systems of
internal control, accounting procedures, and other evidence, for one or more of the following
purposes:
An examination and verification of a company's financial and accounting records and supporting
documents by a professional
A formal examination of an organization's individual accounts or financial situation. An audit may
also include examination of compliance with applicable award terms, laws, regulations and policies.
The examination of some or all of the following items: documents, records, reports, systems of
internal control, accounting procedures, and other evidence, for one or more of the following
purposes: (a) determining the propriety, legality, and mathematical accuracy of proposed or
consummated transactions; (b) ascertaining whether all transactions have been recorded; and (c)
determining whether transactions are accurately reflected in the accounts and in the statements
drawn there from in accordance with accepted accounting principles.
Article 169 of the Constitution gives the functions of the Auditor General, who heads the Audit &
Accounts organization of Government of Pakistan. This organization, under the Audit & Accounts Order
1973 ensures that the public money is spent and transactions are made in accordance with the financial
rules.
The accounts of federation and of provinces will be kept according to the principles and methods
given by the Audit & Accounts Order and rules and procedures. All the accounts will have to be submitted
to the President in the case of federation and to the Governors in case of the Provinces who will put before
the respective assemblies.
Use of Public Money
Public money is the money from tax and non tax revenue and borrowed money. This money has to
be spent according to the laid down procedures (Drawing and disbursing Handbook). The fundamental
principle of spending public money is to spend public money in a manner as one would spend ones own
money.
Definition of Performance Audit and Value for Money
While audit is like a "post mortem", after the event or financial transaction has taken place it
verifies whether rules were adhered to. In performance audit the whole working of the organization is
analyzed.
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Introduction To Public Administration­MGT111
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Performance audits are value for money audit and the use of resources by public sector
organizations in relation to its achievement of goals. Although performance audit can be very wide-ranging,
in broad terms, it can be applied to:
-
Those activities involving a considerable level of resources
-
Projects that are at risk of failing in their objectives
-
Issues which are of concern to Parliament or the Public Accounts Committee, (Public
Accounts Committee is a committee of parliament which reviews the accounts of all
government organization every year).
The term "value for money" refers to the way in which resources (financial, human or physical)
have been allocated and utilized by the entity (organization).
Following definition has been used for performance audit:
"A performance audit "is an objective and systematic examination of a
public sector organization's programme, activity, function or management
systems and procedures to provide an assessment of whether the entity, in
the pursuit of predetermined goals, has achieved economy, efficiency and
effectiveness in the utilization of its resources".
Performance audit, therefore, involves an independent assessment of whether economy, efficiency
and effectiveness have been achieved by organization. Now let us see each of the word used in definition to
have better understanding of performance audit.
Economy
Economy is concerned with minimizing the cost of resources used (staff, materials and equipment)
for an activity in the pursuit of its objectives and whether they are in accordance with sound administrative
principles and practices and management policies. An economical organization acquires its input resources,
of the appropriate quality and quantity, at the lowest cost. In summary, economy means minimizing the cost
of resources used for an activity, having regard to quality i.e. spending economically, whilst maintaining
quality.
Example: Where standard items such as school or hospital supplies of a given quality are purchased at the
best possible price.
Example: Cost of a vehicle in comparison with another model of similar quality.
Efficiency
Efficiency is concerned with the relationship between goods and services produced (the outputs)
and the resources used to produce them (the inputs). An efficient entity produces the maximum output
from any given set of inputs. Alternatively, it may require minimum input. This will be reflected in increased
productivity and lower unit costs. In summary, efficiency means ensuring that maximum output of goods
and services has been gained from the resources used in their production i.e. spending well.
Example: Efficiency has improved when the unit cost of teaching children or providing hospital treatment
has been reduced over time; or where more children have been taught or hospital beds provided,
without additional resources.
Example: Reduction in repairs and maintenance cost of equipment, for example, vehicles, computers or
photocopiers, is a measure of efficiency
Effectiveness
Effectiveness is concerned with achieving predetermined objectives (specific planned
achievements) or goals and with actual impact (the output achieved) compared with the intended impact
(the objectives). Using a range of performance measures and indicators, it is possible to assess an entity's
effectiveness. In summary, effectiveness means ensuring that the desired results, objectives, targets or
policies have been successfully achieved i.e. spending wisely.
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Introduction To Public Administration­MGT111
VU
Example: Where there has been an improvement in school examination results or where sickness rates have
fallen as a result of medical care.
Example: Whether the purchased item or service provided was "fit for purpose".
The following model presented in Figure 1, illustrates the relationships between inputs, processes
and outputs and between economy, efficiency and effectiveness:
Figure 1
Economy, Efficiency and Effectiveness
Planned
Planned
Planned Inputs
Inputs
Inputs
(Policy Objectives)
Economy
Efficiency
Effectiveness
Actual Inputs
Actual Outputs
Process
(Resources Used)
(Output Achieved)
The figure 1 illustrates that economy is related to plan inputs and actual input use which is
processed and it is what the actual outputs are. So there should be economy in use of resources, these
resources should be efficiently processed and should also be able to achieve/realize outputs, which will
show effectiveness in use of resources.
In practice, the boundaries between economy, efficiency and effectiveness are seldom clear-cut.
Examinations of Value For Money (VFM), therefore, normally pursue these various aspects of performance
simultaneously as part of the same exercise.
Objectives of Performance Audit
The primary objective of performance audit is to provide parliament with independent information,
assurance and opinion about economy, efficiency and effectiveness in major fields of revenue, expenditure
and the management of resources.
A secondary objective of performance audit is to identify ways of improving value for money and
to encourage and assist audit bodies to take the necessary action to improve systems and controls. Areas of
Performance Audit are that Performance reviews can be used to cover all types of management activities,
which must be audited for better use of resources.
Concepts
Audit:
it is the examination of financial records of an organization after
transactions have taken place at the end of financial year. It
reviews whether the rules of accounts were applied or not.
Performance audit:
it is the examination and analysis of all the activities of the
organization and it is seen that the money used has been able to
achieve objectives/goals economically, efficiently and effectively.
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Table of Contents:
  1. INTRODUCTION:Institutions of State, Individualism
  2. EVOLUTION OF PUBLIC ADMINISTRATION:Classical School, The Shovelling Experiment
  3. CLASSICAL SCHOOL OF THOUGHTS I:Theory of Bureaucracy, Human Relation Approach
  4. CLASSICAL SCHOOL OF THOUGHTS II:Contributors of This Approach
  5. HUMAN RELATIONS SCHOOLS:Behavioural School, System Schools
  6. POWER AND POLITICS:Conflict- as Positive and Negative, Reactions of Managers, Three Dimensional Typology
  7. HISTORY OF PUBLIC ADMINISTRATION I:Moghul Period, British Period
  8. HISTORY OF PUBLIC ADMINISTRATION II
  9. CIVIL SERVICE:What are the Functions Performed by the Government?
  10. CIVIL SERVICE REFORMS:Implementation of the Reforms, Categories of the Civil Service
  11. 1973 CONSTITUTION OF PAKISTAN:The Republic of Pakistan, Definition of the State
  12. STRUCTURE OF GOVERNMENT:Rules of Business, Conclusion
  13. PUBLIC AND PRIVATE ADMINISTRATION:The Public Interest, Ambiguity, Less Efficient
  14. ORGANIZATION:Formal Organizations, Departmentalization
  15. DEPARTMENTALIZATION:Departmentalization by Enterprise Function, Departments by Product
  16. POWER AND AUTHORITY:Nature of Relationship, Delegation of Functional Authority
  17. DELEGATION OF AUTHORITY:The Art of Delegation, Coordination
  18. PLANNING I:Four Major Aspects of Planning, Types of Plans
  19. PLANNING II:Planning ProcessThree principles of plans
  20. PLANNING COMMISSION AND PLANNING DEVELOPMENT:Functions, Approval Authority
  21. DECISION MAKING:Theories on Decision Making, Steps in Rational Decision Making
  22. HUMAN RESOURCE MANAGEMENT (HRM):Importance of Human Resource, Recruitment
  23. SELECTION PROCESS AND TRAINING:Levels at Which Selection takes Place, Training and Development
  24. PERFORMANCE APPRAISAL:Formal Appraisals, Informal Appraisals
  25. SELECTION AND TRAINING AND PUBLIC ORGANIZATIONS:Performance Evaluation,
  26. PUBLIC FINANCE:Background, Components of Public Finance, Dissimilarities
  27. BUDGET:Components of Public Income, Use of Taxes, Types of Taxation
  28. PUBLIC BUDGET:Incremental Budget, Annual Budget Statement, Budget Preparation
  29. NATIONAL FINANCE COMMISSION:Fiscal Federalism Defined, Multiple Criteria
  30. ADMINISTRATIVE CONTROL:Types of Accountability, Internal Control, External Control
  31. AUDIT:Economy, Effectiveness, Objectives of Performance Audit, Concepts
  32. MOTIVATION:Assumptions about Motivation, Early ViewsThree Needs
  33. MOTIVATION AND LEADERSHIP:Reinforcement Theory, Leadership, The Trait Approach
  34. LEADERSHIP:Contingency Approaches, Personal Characteristics of Employees
  35. TEAM I:Formal & Informal teams, Functions of Informal Groups, Characteristics of Teams
  36. TEAM II:Team Cohesiveness, Four ways to Cohesiveness, Communication
  37. COMMUNICATION I:Types of Communication, How to Improve Communication
  38. COMMUNICATION II:Factors in Organizational Communication, Negotiating To Manage Conflicts
  39. DISTRICT ADMINISTRATION:The British Period, After Independence, The Issues
  40. DEVOLUTION PLAN I:Country Information, Tiers or Level of Government
  41. DEVOLUTION PLAN II:Aim of Devolution Plan, Administrative Reforms, Separation of powers
  42. POLITICAL REFORMS:District, Tehsil, Functions of Union Council, Fiscal Reforms
  43. NEW PUBLIC MANAGEMENT (NPM):Strategy, Beginning of Management Approach
  44. MANAGERIAL PROGRAMME AGENDA I
  45. MANAGERIAL PROGRAMME AGENDA II:Theoretical Bases of Management, Critique on Management