Performance audit with enhancing effectiveness of Collecting and spending toll fee

it- that only focused on the compliance with the regulations on expenditures. They want to know if the "value for money" has been implemented only for the funds. They also want the people who have responsible for revenue, public expenditure management the public funds to explain more for that. The public request has created challenges to State auditors who must try to respond by expanding the scope of their activities. Therefore, they started implementing performance audit, then in that countries the audit law and other laws related were issued, in which the state auditor and the internal auditor must consider for the value of money when implement audit by themselves. In Vietnam, the concept of "performance audit" is only known in the early years of the 90 decade through documents from foreign countries. Until now, the number of people who have good knowledge and have conditions to apply and practice performance audit is limited as compared to the financial audit. The State Audit was established to improve the effectiveness of macro-management of the government in collecting and using resources of the country. Until now, the State Audit has implemented many specific activities. In the past years it has contributed to clean up the national finance, increased the national budget income and reduced the national budget spending thousands billion dongs. Currently in the implementation tasks process, audit activities mainly focus on financial audit and compliance audit, but what happened to our country has shown the status of public resources wasted in the using national budget. Following the general trend, we started implementing performance audit to remove that situation. So far, Performance audit has officially implemented in the "Audit of Collecting and spending toll fee". Although it has good results, some weaknesses remain. Therefore, the research “Performance audit with enhancing effectiveness of Collecting and spending toll fee” is selected for in-depth study. 2. Research purposes Based on analyzing performance audit and practices of the "Audit of Collecting and spending toll fee" of the State Audit of Vietnam, the thesis proposes recommendations to enhance effectiveness of performance audit of Collecting and spending toll fee. 3. Research objectives and scope Performance audit is new from both theoretical and practical perspectives, because it just has occurred in a short time. Therefore, we focus on main issues of performance audit and audit process in our country now. The objectives of the research are: - To give an overview of performance audit and forming the scientific basis for implementing performance Audit. - To introduce requirements of "Collecting and spending toll fee audit" and describing how State Audit of Vietnam did it - To describe and analyze issues about performance audit in "Collecting and spending toll fee audit”. - To assess the practice described and suggest, solutions and petitions to improve the performance audit with regard to collecting and spending toll fee. - To suggest some recommendations to enhance performance audit in State Audit of Vietnam. 4. Research methodology. In order to meet research objectives, literature survey, interview and sending questionnaires were used to collect information and data. Secondary data: Secondary data have been collected from various sources including. Audit textbooks and curriculums, legal documents are available to take information such as definition, the necessary, the objective of performance audit, professional requirements for performance audit. These documents were promulgated by Vietnamese authorities such as National Economic University, Finance Academy, Vietnamese Government, State Audit of Vietnam, Ministry of Finance, Vietnamese Association of Certified Public Accountant and Foreign authorities such as INTOSAI, ASOSAI, EC project, GTZ project; Literature survey was used to collect information related to the State Audit of Vietnam, Collecting and spending toll fee audit report, audit works, audit files, etc… Primary data: Primary data were collected by using techniques of interviewing and sending questionnaires. Interview: This technique was done for collecting primary data. There are 7 in depth interviews including interview the head of Major 2 department (State Audit of Vietnam), team leader of Collecting and spending toll fee audit team, 3 auditors in charge about audit works. Questionnaires: this tool was used by sending question to leaders of audit association, audit team leaders, auditors, leaders and staffs of audited bodies. The questionnaire was originally made in Vietnamese and later was translated into English. The questionnaires are included in appendix of this thesis. The quantitative surveys were completed with 36 questionnaires sending to leaders of audit association, audit team leaders, auditors, leaders and staffs of audited bodies. 5. Research Structure This study consists of 3 chapters with brief bellows Chapter I: The theoretical framework of performance audit This chapter presents the picture of theoretical frameworks related to performance audit with the basic concepts of performance audit, performance audit criteria, process of performance audit and introduce about performance audit in other countries. Chapter II: Real situation of Collecting and spending toll fee audit This chapter give an overview of performance audit and describes Collecting and spending toll fee audit. Specifically, the chapter mentions requirements and the score of the State audit in implement performance audit; describes real situation of Collecting and spending toll fee audit and gives Audit findings. Chapter III: Recommendations and Conclusion. This chapter proposes numbers of recommendations to enhance effectiveness of collecting and spending toll fee, then enhance performance audit and improving decisions, regulations of the state-audit Law. Chapter 1: The theoretical framework of performance audit The basic concepts of performance audit Introduction of performance audit Bringing audit into the world, internal or external audit is to serve for efficient management of economy sources. The reality of economy sources management shows that, there is so important to evaluate about honest and legality of unit’s finance information but in the reality, it’s not enough to satisfy all the demand of managers. There is a new type of audit appear in public. It is performance audit. Performance audit is a type of auditing, which appears later than financial audit. It arisen because of higher demand of efficient management of resources. Performance audit is implemented primarily by State Audit and Internal audit. Performance audit organized and implemented base on extending and developing functions of finance report auditing. So took shape base on extending and developing the professional methods, audit activities organizing, processing, etc… of finance report auditing and develop an audit function of audit organizations. Difference of tradition audit (financial audit), performance audit is a new audit type, its objectives, contents are multiform; depend on quality, objective, operation areas, economy manage developing of audit object. So performance audit is a complicated audit field and being developed. Definition of performance audit The term “Audit” includes financial audit, compliance audit and performance audit include definite of good textbook. It further adds that in pursuance of the constitutional responsibility, The SAI is empowered to decide the nature, scope, extent and quantum of audit to be conducted by it or on its behalf. INTOSAI Audit standard 1.0.40 defines the performance audit as under: “Performance audit is concerned with the audit of economy, efficiency and effectiveness and includes: Audit of the economy of the administrative activities in accordance with sound administrative principles and management policies; Audit of the efficiency of utilization of human, financial and other resources, including examination of information systems, performance measures and monitoring arrangements and procedures followed by audited entities for remedying identified deficiencies; Audit of the effectiveness of performance in relation to the achievement of the objectiveness of the audited entity and audit of the actual impact of activities compared with the intended impact.” Performance auditing is an independent assessment or examination of the extent to which an entity, program or organization operates efficiently and effectively, which due regard to economy. In practice, there can be an overlap between compliance and performance auditing and in such a cases, classification of a particular audit will depend on the primary purpose of that audit. Compliance audit embraces attestation of financial accountability involving expression of opinion on financial statements, audit of financial systems and transactions, including an evaluation of compliance with applicable statues and regulations, audit of internal control and internal audit functions and audit of probity and propriety of administrative decisions taken within the audited entity. Public sector performance auditing is a way for taxpayers, financiers, legislatures, executives, ordinary citizens and the media to obtain information about the running and outcome of different government operations. Performance auditing also provides answers to questions such as do citizens get value for money, or is it possible to spend the money better or more wisely. Public sector performance audit tends to be of two types: Those where the State Audit Office examines how government ministries are managing and evaluating their own operations to ensure that they achieve economy, efficiency and effectiveness; Those where the State Audit Office directly evaluates whether economy, efficiency or effectiveness have been achieved by government ministries. Features of performance audit As stated in the Auditing Standards of INTOSAI, performance auditing is not overly subject to specific requirements and expectations. While financial auditing tends to apply relatively fixed standards, performance auditing is more flexible in its choice of subjects, audit objects, methods, and opinions. Performance auditing is not a regular audit with formalized opinions, and it does not have its roots in private auditing. It is an independent examination made on a nonrecurring basis. It is by nature wide-ranging and open to judgments and interpretations. It must have at its disposal a wide selection of investigative and evaluative methods and operate from a quite different knowledge base to that of traditional auditing. It is not a checklist-based form of auditing. The special feature of performance auditing is due to the variety and complexity of questions relating to its work. Within its legal mandate, performance auditing must be free to examine all government’s activities from different perspectives. The character of performance auditing must not, of course, be taken as an argument for undermining collaboration between the two types of auditing. Meaning of economy, effectiveness and efficiency in performance audit As stated above, performance auditing is mainly concerned with the examination of economic, efficiency, and effectiveness. According to the Auditing Standards (AS 1.0.40), an individual performance audit may have the objective of examining one or more of these three aspects. Figure 1.1: Meaning of economy, effectiveness and efficiency in performance audit Economy Efficiency Effectiveness Minimizing Input costs and keeping right quality Increasing output for same input or reducing input for same output - at right quality Meeting or exceeding policy objectives and delivering intended impacts (Source: Performance Audit Guide- EC project) Economy Economy is minimizing the cost of resources used for an activity, having regard to the appropriate quality. Economy issues focus on the cost of the inputs and processes. Economy occurs where equal- quality resources are acquired at lower price, spending less. Judging economy in itself implies forming an opinion on the resources (human, financial and material) deployed. The central question is to assess whether- given the context- resources have been acquired, upheld and used economically. The question to be asked by a performance auditor is, do the means chosen represent the most or at least a reasonable economical use of public funds? Efficiency Efficiency is relationship between the outputs, in terms of goods, services or other results and the resources use to produce them. Efficiency is where the use of any given set of resources inputs, or input is minimized for any given quantity and quality of output, spending well. The main question related to efficiency is whether the resources have been put to an optimal or satisfactory use or whether the same or similar results in terms of quality and turn- around time could have been achieved with fewer resources. The question refers to the relationship between the quality and quantity of goods and services yielded and the cost of resources used to product them, in order the results achieved. A finding on efficiency can be formulated by means of a comparison with similar activities, with other period or with a standard, which the entity has explicitly adopted, sometimes, standards such as best practices are applicable. Assessments on efficiency might also be based on condition which related to specific standard, when matters are so complex that are no standards. In such case, assessment must be based on the best available information and arguments and in compliance with the analysis carried out in the audit. Effectiveness Effectiveness is the extent to which objectives and achieved the relationship between the intended impact and the actual impact of an activity. Effectiveness addresses the issue of whether the program/ activity has achieved its objectives, spending wisely. When focus on effectiveness, it is important to distinguish between the immediate outputs or products and the ultimate impacts or outcomes. Effectiveness is achieved, for instance, where there is improved achievement of a program’s objectives. Outcomes are important to the effectiveness of program/ activities but may be difficult to measure and assess than the inputs and outputs. Outcomes will often be influenced by external factors and many required long- term rather than short- term assessment. Effectiveness is essentially a goal- attainment concept. It is concerned with the relationship between the objectives set up. Outputs provided and objectives met. Some of the questions to ask in effectiveness assessment are. A the objectives of the policy being employed and the results achieved consistent with the objectives of the policy and- perhaps the most difficult- are the impacts really the results of the policy rather than other circumstance? The last ones may be difficult to establish in most cases and will call for a caution approach. Performance auditor may come across situation where the inputs stated to have been used and outputs states to have been derived are not correctly stated. Unless the correctness of inputs and outputs are validated with the help of appropriated audit test, the evaluation of efficiency may be yielded incorrect results. It is, therefore incumbent upon the performance auditor to verify correctness of the reported data of “inputs” and “outputs” while applying the test of efficiency. For example, the money stated to have been utilized on a program might not be used entirely on the program. Part of the inputs may have been used on other items, part could be unutilized in the form of deposits, another part could be advances to vendors, analyzing of inputs, particular the financial inputs with the help of a finance inverse free may establish the resources actually utilized for the program. Similar analysis for other inputs and all outputs may be necessary to carry out an accurate analysis for efficiency. Differences between Performance Audit and Financial Audit It is possible that both financial audit and performance audit might cover the same audit area e.g. controls over debt management systems or systems to prevent fraud. In practice the type of audit being undertaken is determined by its fundamental objective i.e.: If the main objective of the audit is to check that controls are working satisfactorily, than it is financial audit; If the main objective of the audit is to answer questions about economy efficiency or effectiveness, then it is performance audit. Another way to decide if an audit is a performance audit is to look at the questions the audit is trying to answer. Performance audit usually tries to answer two basic questions: Are things being done in the right way? Are the right things being done? Influence of public management to performance auditing The form of public management employed will necessarily influence priorities in performance auditing. In countries where public management is mainly concerned with means and less involved with ends, audits also tend to focus on whether rules have been observed and enforced rather than whether the rules serve or are seen to serve their intended purpose. In countries that have acknowledged management by objectives and results, the audit focus is different. Public sector management generally displays a combination of these philosophies. As mentioned above, management by objectives and results tends to promote interest in auditing efficiency and effectiveness. As a result, the auditor might not have to confront a traditional, rule-bound government administration but an administration whose mandate has been widened considerably in terms of how the intentions of the legislature should be put into operation and which means should be employed in order to achieve them. Typically, following questions would be of interest to a performance auditor: Is there a clear structure of performance goals and have the appropriate priorities and instruments been chosen for the use of public funds? Is there a clear distribution of responsibility between the different levels of authority, bearing in mind the principle of subsidization? Is there a general cost awareness and an orientation towards production of services, putting citizens’ needs in focus? Is there an adequate emphasis on management controls and reporting requirements? Ministries and their subordinate bodies are responsible for ensuring that good internal control routines are established. In this context, it is the particular task of the performance auditor to keep an eye on whether this responsibility has been properly taken care of. The extent to which it has in fact also been observed by the auditor or the auditors in their operations is for the financial auditor to judge. In addition, a common objective of most governments today is to improve the quality of public services, particularly as people’s expectations (often with reference to the service they receive from the private sector) of what constitutes quality continue to increase. To promote improvements of this type, many governments have embarked on modernization programs to deliver better services that are, for instance, more easily accessible and convenient, provide citizens with more choice, and are delivered more quickly. The quality of public services is an increasingly important issue, which members of parliaments and governments across the world expect the SAIs to address in their performance audit reports. Relationship between performance auditing and performance measurement and program evaluation Both the executive branch and the legislature need evaluated information to help them make decisions about the programs they are responsible for this information tells them whether, and in what important ways, a government undertaking or program is working well or poorly, and why. Many analytical approaches have been employed over the years by agencies and others to assess the operations and results of government programs, policies, activities, and organizations. Performance audit and evaluation studies are designed to judge how specific programs are working and may differ a great deal. One particular aspect is the relationship between performance measurement, program evaluation, and performance auditing. Performance measurement Performance measurement normally means the ongoing process of monitoring and reporting on program accomplishments, particularly progress towards pre-established goals. Performance measures may address the type or level of program activities conducted (process), the direct products and services delivered by a program (outputs), and/or the results of those outputs (outcomes). Performance measurement focuses on whether a program has achieved its objectives or requirements, expressed as measurable performance standards. Performance measurement, because of its ongoing nature, can serve as an early warning system to management and as a vehicle for improving accountability to the public. The ongoing process of ensuring that a government program or body has met the targets set is a matter of internal management and control, not a task for external auditors. It is the responsibility of the financial auditors – not the performance auditors – to confirm that the accounts are correct. However, in the area of performance measurement – the check on the quality of performance-related information produced by the executive branch for the legislature – both financial and performance auditors might be involved, either in separate activities or in joint audits.11 Performance indicators can sometimes also be used as indicators or references in planning individual performance audits. One topic for performance auditing is whether performance measurement systems in government programs are efficient and effective. For example, questions could be developed that address whether the performance indicators measure the right things or whether the performance measurement systems involved are capable of providing credible measured results. Program evaluation and performance auditing Program evaluations are individual systematic studies conducted to assess how well a program is working. Program evaluations typically examine a broader range of information on program performance and context than is feasible to monitor on an ongoing basis. A program evaluation may thus allow for an overall assessment of whether the program works and what can be done to improve its results. Program evaluations are one type of study that might be executed by a SAI under the general heading of performance audits. In recent years, the concept of program evaluation has been a growing subject of discussion amongst SAIs. Whether or not program evaluation is an important task for a SAI has been discussed. A special group (INTOSAI Working Group on Program Evaluation) has been set up to promote principles and guidance in this area. It is generally accepted that program evaluation has objectives identical or similar to those of performance auditing in that it seeks to analyze the relationship between the objectives, resources, and results of a policy or program. It has also been agreed that program evaluation is an important task for a SAI that has the authority and competence to carry out such studies. Program evaluation has been described as an epitome of activities and methods that have aim to make exhaustive assessments of an issue, using more or less sophisticated scientific approaches. Although performance auditing may use the same approaches and methodologies as program evaluation, it does not, according to the INTOSAI Working Group on Program Evaluation, necessarily engage in assessing policy effectiveness or policy alternatives. In addition to examining the impact of outputs, program evaluation may include issues such as whether the stipulated aims are consistent with general policy. This issue has been the subject of discussion among SAIs. Some SAIs has the right to evaluate government and/or agency policy effectiveness and include program evaluation in their performance audit mandate. Others are not required to conduct such audits. According to INTOSAI’s Working Group on Program Evaluation, auditing and evaluation may be divided into the following seven categories: • Compliance audit: are regulations complied with? Are regulations complied with? • Economy audit: do the means chosen represent the most economical do the means chosen represent the most economical use of public funds for the given performance? • Efficiency audit: are the results obtained commensurate with the resources employed? • Effectiveness audit: are the results consistent with the policy? Are the results consistent with the policy? • Evaluation of the consistency of the policy: are the means employed by are the means employed by the policy consistent with the set objectives? • Evaluation of the impact of the policy what is the economic and what is the economic and social impact of the policy? • Evaluation of the effectiveness of the policy and analysis of causality: are the observed results due to the policy, or are there other causes? In practice classifications vary. One SAI with many years’ experience of program evaluation is the General Accountability Office of the US. It defines four common types of program evaluations in performance auditing: (1) Process evaluation This assesses the extent to which a program is operating as intended. Typically, it is concerned with the program activities’ conformity with statutory and regulatory requirements, program design, and professional standards or customer expectations. It is increasingly important to assess whether the quality of the operations – for instance application forms, processing times, service deliveries and other client-oriented activities – meets the people’s expectations. (2) Outcome evaluation This assesses the extent to which a program achieves its outcome-oriented – and client-oriented – objectives. It focuses on outputs and outcomes (including side effects and unintended effects) in order to judge program effectiveness, but it may also put emphasis on quality issues and client perspectives. An outcome evaluation may also assess program processes in order to fully understand a program and how outcomes are produced. (3) Impact evaluation This assesses the net effect of a program by comparing program outcomes with an estimate of what would have happened in the absence of the program. This form of evaluation is employed when external factors are known to influence the program’s outcomes, in order to isolate the program’s contribution to the achievement of its objectives. (4) Cost-benefit and cost-effectiveness evaluations These are analyses that compare a program’s outputs or outcomes with the costs (resources expended) to produce them. When applied to existing programs, they are also considered a form of program evaluation. Cost-effectiveness analysis assesses the cost of meeting a single goal or objective, and can be used to identify the least costly alternative to meet that goal. Cost-benefit analysis aims at identifying all relevant costs and benefits. 1.2. Performance audit criteria Basic concepts of performance audit criteria Performance audit criteria are standards which are rational and able to reach about economy, effectiveness and efficiency. So, performance audit criteria gather all standards in management, using economic resources of audited unit’s activities. Auditors have to collect all of it to evaluate economy, effectiveness and efficiency of audited unit’s activities. Selected criteria to evaluate have to suitable for the target of the audit; Standards for performance audit evaluation is quantitative factor about using and spending economic resources for audited unit’s activities. Performance audit criteria have to build on suitable area, suitable trade and suitable audited bodies. Role of performance audit criteria Audit criteria are reasonable and attainable standards of performance against which the economy, efficiency, and effectiveness of activities can be assessed. They reflect a normative model for the subject matter under review. They represent best or good practice, a reasonable and informed person’s expectation of “what should be.” When criteria are compared with what actually exists, audit findings are generated. Meeting or exceeding the criteria might indicate “best practice,” but failing to meet criteria would indicate that improvements could be made. Requirements of performance audit criteria Some characteristics of suitable criteria include the following. Reliability: Reliable criteria result in consistent conclusions when used by another auditor in the same circumstances. Objectivity: Objective criteria are free from any bias of the auditor or management. Usefulness: Useful criteria result in findings and conclusions that meet users’ information needs. Understandability: Understandable criteria are clearly stated and are not subject to significantly different interpretations. Comparability: Comparable criteria are consistent with those used in performance audits of other similar agencies or activities and with those used in previous performance audits of the entity being audited. Completeness: Completeness refers to the development of all significant criteria appropriate to assessing performance. Acceptability: Acceptable criteria are those that independent experts in the field, audited entities, legislature, media, and general public are generally agreeable to. Criteria can perform a series of important roles to assist the conduct of a performance audit, including: • Forming a common basis for communication wit._.hin the audit team and with SAI management concerning the nature of the audit; • Forming a basis for communication with the auditor’s management; • Forming a basis for the data collection phase by providing a basis on which to build procedures for the collection of audit evidence; and • Providing the basis for audit findings and helping to add form and structure to observations. Their level of detail and the form they take often determines the degree to which criteria are successful in serving these uses. It is unrealistic to expect that those activities, systems, or levels of performance in economy, efficiency, and effectiveness areas will always fully meet the criteria. It is important to appreciate that satisfactory performance does not mean perfect performance, but is based on what a reasonable person would expect, taking into account auditor circumstances. The audit criteria must be set objectively. The process requires rational consideration and sound judgment. The auditors must for instance: • Have a general understanding of the area to be audited, and be familiar with relevant legal and other documents as well as recent studies and audits in the area; • Have good knowledge of the motives and the legal basis of the government program or activity to be audited and the goals and objectives set by the legislature or the government; • Have a reasonable good understanding of the expectations of the major stakeholders, and be aware of basic expert knowledge; and • Have a general knowledge of practices and experience in other relevant or similar government programs or activities. Moreover, it is often useful to obtain the input of auditor(s) management to the development of criteria. Disagreement about criteria can then be identified, discussed, and, perhaps, resolved at an early stage. However, the facts and arguments presented by the auditors must be weighed against other relevant facts and arguments (from other sources, experts etc.). Goals set by the legislature or the executive branches are sometimes vague or conflicting. Under such conditions, the auditors might have to interpret the goals to make them more operational or measurable. One possibility is to get experts and stakeholders in the field to answer questions such as: How should the goals and objectives best be interpreted and measured? What should be the expected results under the given conditions? What is the best-known comparable practice? Types of performance audit criteria Also performance audit’s criteria are so multiform but we can synthesize it to 2 type of performance audit criteria: General criteria: are all of criteria which evaluate all of audited unit’s general activities. General criteria are base of conclusions about economy, effectiveness and efficiency in economic resources management of audited bodies. Specific criteria: are all of criteria which are used to evaluate each of content, each of factors, each of performance in audited unit’s activities. Specific criteria are general base of auditor’s comment and auditor’s evaluation about each of content, each of performance, judge causes which base of performance audit’ comments and performance audit’s petitions. Two type of performance audit criteria have relation of identify. That criteria are beginning to take shape in audit preparative process and step by step completed and improved in audit implementation process. Process of performance audit Preparation of performance audit The approach to performance audit planning described in this manual covers the following stages: Understanding the audited body’s activities At the audit selection stage it is important to have an overview of an audited body’s activities. Typical questions to ask before selecting an audit topic are: What are the audited body's aims and objectives? What are the main policy instruments? What are the main activities? How is the audited body organized to deliver its activities and who is responsible for the different operations? Are there are any major new initiatives planned? How much is spent on resources, what other expenditure is there, and how much is received in income? How is performance measured, and what targets are set? Who are the customers of the services provided or the recipients of benefits? What previous performance audits have there been and what were the results? Understanding the business of government ministries requires access to good information. Such information may be taken from a number of sources: Figure 1.2: Audited body’s activities From audited bodies such as government ministries and agencies High level documents such as annual reports and business plans; Resource and budget data; Performance results compared with targets; Accounts; Government Internet web pages. From external stakeholders Media reports – newspapers and journals; Academic papers; Publications from professional bodies; Outputs from specialist official organizations, representative groups and charities; Internet. From the National Assembly and State Audit of Vietnam Previous SAV reports; National Assembly reports; Material from SAV financial audits. From other audit or inspection bodies Work done by other external auditors from the private sector; Reports from the State Inspectorate; Overseas Supreme Audit Institutions’ reports. (Source: Author’s idea) Risk Assessment Risk is the chance of things going wrong. Risk management is an attempt to minimize the chance of things going wrong, and to establish clear methods to deal with problems arising if they do. Risk assessment involves identifying each risk, establishing how important it is (based on an assessment of its probability and impact) and deciding whether the size of the risk is acceptable. Using risk assessment Risk assessment involves identifying and prioritizing different risks. Resources can then be targeted more effectively on the main risks. Risk assessment is used in performance audit to identify the main threats to economy, efficiency and effectiveness within the audited body’s operations. Risks can then be prioritized and the audit can focus on those risks with the highest overall impact. Why risk assessment is important for performance audit. It enables auditors to focus audit effort more efficiently and effectively, reduces over auditing of audit areas of low risk and makes best use of existing resources. Figure 1.3: Typical risk factors to consider in government ministries expenditure increasing beyond expectation; performance against targets not being met; significant cost and time overruns on projects; high levels of complaints about quality of service; large amounts of unrecoverable debt and debts written off; new initiatives set up to quickly; with loss of quality; failed or unreliable systems; poor performance of contracted out services; substantial losses because of fire, theft, or waste; contracts consistently awarded with no competition; National Assembly and SAV recommendations not implemented. (Source: Author’s analysis) Figure 1.4: Main categories of risk that affect government ministries: Organization risks: - Those identified from a top-down review of ministries and which may affect a number of different government operations. Examples of organization risks: Loss of critical information/security breach; Business failure in the event of a disaster; Poor value from outsourced contracts; Underperforming Human Resource systems; Not complying with external legislation; Inadequate support services; Health & safety failures (public/staff); Damage to reputation; Inadequate financial management. Operational risks: - Those identified by getting an understanding of an audited body’s business operations, and information from financial systems audit. Examples of operational risks: Building projects not well managed; Health immunization programs not meeting targets; Large numbers of students failing to complete studies or pass exams; Defense equipment purchases too expensive and too late; External risks:- Those identified through newspapers, television and talking to senior government officials. Examples of external risks: Unstable business environment - oil prices; Future events - climate change; Relationship with private sector contractors or fund donors. (Source: Author’s analysis) Some types of irregular activity may be classified as medium or high risk by their nature, even if financial values are low, because they carry a risk of damaging the Government’s reputation. The possibility of a fraud involving medium levels of expenditure would be rated as high risk, because any fraud is damaging to government reputation and lowers the morale of government officials. However if there was a possibility that a senior government official is implicated as being involved in any type of corruption, the amounts involved could be small, but auditors would still rate that risk as high, because of the greater damage to the Government’s reputation. If a fraud is discovered to have been committed by a junior official involving a small amount of money, the risk may be low depending on the following considerations: If the fraud or irregularity was discovered through the normal operation of audited body controls, then this is proves that the controls are effective, and the risk is low; If auditors found that no fraud occurred but that controls to prevent a fraud occurring were insufficient or non-existent, then the risk could be rated as medium, because over time more significant amounts of budgeted expenditure, revenue or funding could be at risk of fraud. Carrying out an Issues Analysis Explanation of issues analysis: Issues analysis is an audit approach developed by the UK National Audit Office in 1993 which helps to produce well structured audits and reports, with clear messages. This approach helps save time and thus reduces audit costs. At the planning stage issues analysis helps answer the questions What is the audit about? What evidence do auditors need to gather? At the report drafting stage, issues analysis helps answer the questions: What does the evidence show? What should the report say? Reasons for using issues analysis: Many reports contain interesting, useful information, but readers find it hard to pick out the key messages – leading to confusion, or even disinterest. Auditors therefore need a way to identify key messages, avoid unnecessary information and provide a logical structure to the report. Issues Analysis produces the high-level check-list for the audit: Performance audit asks questions about economy, efficiency and effectiveness. Issues analysis is a way of prioritizing and ordering these questions in order to structure the audit logically. Issues analysis is also a way to develop detailed audit checklists for fieldwork audit testing. Performance audit covers all aspects of public sector operations and it would be impossible to develop standard checklists for every type of audit. Issues analysis enables auditors to develop detailed checklists for every kind of audit. Auditors must recognize that expert advice may need to be obtained when developing detailed questions in technical areas such as scientific research and medical treatment. The benefits of using issues analysis are: It turns high level questions into specific audit tasks, linked to detailed methodologies and evidence sources; It produces disciplined logical arguments; It is a team based approach, so team members feel ownership of the audit and understand why the work is being done; There is potential to invite government ministries and consultants to the issues analysis event, leading to “buy in” at all levels; The work is focused on audit questions, reducing unproductive fieldwork, The audit questions provide a plan for fieldwork; A logical approach to answering the audit questions generates a clear report outline and reduces unnecessary information; The clear step-by step methodology reduces time spent on audit planning and report drafting. Table 1.1: Audit Methodology Analysis Table Audit Questions Criteria Evidence required Evidence sources Data Collection Methods WHAT DO AUDITORS WANT TO KNOW? WHAT STANDARD DO AUDITORS MEASURE AGAINST? WHAT EVIDENCE WILL ANSWER THE QUESTION? WHERE ARE AUDITORS GOING TO GET THE EVIDENCE? HOW ARE AUDITORS GOING TO GET THE EVIDENCE? Insert the issues analysis 3rd level question here Remember that the answer to the audit question may be partly yes or partly no. Objectives, targets or standards; Past performance, or performance by other organizations; The law, professional guidance, or leading practices; Customer/user expectations. Facts: numerical evidence; descriptive evidence; qualitative information. The audited body or agency; Other public organizations; Published research; Customers or users; Suppliers; Expert groups. In person Observation ; examining documents ; interviews ; focus group. By post, telephone, e-mail requesting documents ; questionnaire. Sample surveys either in person or by post, e-mail. (Source: Performance Audit Guide- EC project) Audit questions at the lowest level of the issues analysis are inserted into the left hand column of the audit methodology. They could be level 3 questions or level 4 questions if more detail is required. The lowest level audit questions are answered by audit testing, and will dictate the types of audit fieldwork methodology used. Designing the performance audit plan A well structured performance audit plan leads to a well focused audit. It provides a logical framework for the audit and assists in project management, helping to ensure the audit is delivered on time and to cost. In effect it provides a road map to enable auditors to get where they want to go. There are no strict rules on the content of the plan, since this will depend on the audit topic and audit approach, but in general an audit plan should cover: Audit objective and/or reason why the audit is being carried out – the main issues analysis question will represent the audit objective, as the purpose of the audit is to answer that question; Scope of the audit; Background information about the organization; Risk assessment; Current issues and risks to economy efficiency or effectiveness; Audit questions to be answered – issues analysis; Methodologies to obtain evidence to answer level 4 questions and evidence required; Timetable, budget and resources. Implementation of performance audit Field work is the application of audit methodologies to collect the evidence necessary to address the issues identified in the audit plan. A good report is based on evidence that is sufficient, relevant and reliable. Whether the evidence meets these criteria will rest upon: how independent the sources of evidence are; how well the data have been analyzed; how carefully the evidence was gathered; the purpose for which the evidence will be used. Auditors should take evidence from people as well as documentary sources, since useful information is not always written down and written material can quickly become out of date. Evidence from external stakeholders – such as users of public services and third parties involved in service delivery – can be just as valuable as that obtained from ministries. Audit Methodologies for Fieldwork Different types of audit objectives and audit questions will result in the selection of different audit fieldwork methodologies. The main types of performance audit methodologies commonly used are surveys, interviews, and analysis of systems, procedures and data. Some examples of other methodologies are detailed below: Figure 1.5: Examples of Audit Methodologies for Fieldwork Impact studies Main question: Are the effects of the government program consistent with the program s objectives? Impact studies assess the effect of a program by comparing the outcome of government programs with an estimate of what would have happened in the absence of the program. This type of audit is used when external factors are known to influence the program’s outcomes, in order to isolate the program’s contribution to the achievement of its objectives. Cost-benefit studies and cost-effectiveness studies Main question: Do the program benefits exceed the costs, and are the objectives met at the lowest possible costs? Cost-benefit studies are investigations of the relationship between the costs and benefits of government projects or programs expressed in monetary terms. For example, a cost-benefit audit might be used to audit the efficiency of investment projects (for instance road-building projects). The purpose of such an audit is to determine whether the benefits of an agency, program or project exceed its costs. Benchmarking studies Main question: Are things being done in accordance with best practices? Benchmarking is a process for comparing an organization’s methods, processes, procedures, products, and services against those of organizations that display best practice in the same categories. Benchmarking may be used to: provide an objective review of processes, practices, and systems; develop criteria and identify potentially better ways of operating; give more credibility to audit recommendations. (Source: Author’s collection) Data collection: Data collection techniques include surveys, sampling, reviews of files and collection of data from databases. Data collection may be performed once or through ongoing measurements such as checks on monthly outputs. Information may be gathered on the basis of physical evidence, documents, including written statements, interviews, or by other means such as photographs, depending on the objectives of the audit. Performance auditing may also produce its own source material with the aid of questionnaires, surveys and direct observation. The types of data to be obtained should be explainable and justifiable in terms of sufficiency, validity, reliability, relevance, and reasonableness. Performance audit programs differ from financial audit programs in that they tend not to be tables of detailed checks on financial controls. Instead, they will set out ways of answering audit questions. Performance audit methodologies may be either “quantitative” - involving numerical data, or “qualitative” - involving interviews, documentary data capture such as text searches, observation, perception mapping and photographic information. A good audit will normally combine quantitative and qualitative data to provide evidence to support its conclusions and recommendations. Obtaining Quantitative Data Quantitative performance audit techniques can be used in surveys and sampling, and analysis of national statistics and audited body data. Evidence based on analysis of quantitative data can be very strong, provided that the data has come from a reliable source, and there is sufficient data upon which to base conclusions. Where organizations record costs or cost activities on computer systems, this can be a key source of performance audit evidence. Examples of quantitative data that may be available are: Government national performance statistics; Monthly and annual payroll data on staff costs; Monthly and annual fuel and building costs; Average unit costs of specific activities per staff member – these could be calculated on the basis of :total staff costs plus associated material costs divided by total number of staff; Trend data – are costs going up or down? (a minimum of three years data is needed in order to develop a trend) Obtaining Qualitative Data Qualitative performance audit work focuses on verbal and visual data captured by interview, group discussion, observation or directly from written documents. It is not statistically representative like quantitative work. Qualitative data is obtained by asking questions such as ‘how’ and ‘why’ rather than ‘how many’ or how often’. It can provide very useful insights into an area under examination. Audit interview An audit interview is a conversation between an auditor and a person being audited, used for gathering data or for information-gathering. There are two main types of interviews are used in performance audit: - structured and unstructured. The differences between the two types of interview are shown below: Structured interviews Unstructured interviews Interview schedule; Questions in same order; No leading questions; Don’t go off the script. Interview guide; Key issues; Let them talk; Can go off on a tangent. Good for wide coverage, comparisons and less complex subjects. Good for deeper, more detailed coverage and more complex subjects. Surveys If auditors want to obtain a statistically representative sample for a survey, it is advisable to seek the advice of a statistician. Surveys are often used to assess the effectiveness of a Government program in meeting the needs of citizens. When carrying out a survey, auditors should consider whether the survey is a snapshot or whether they aim to generalize results over a longer period. Different sample sizes will be required for different types of survey, and auditors should ensure an appropriate sample size for their needs. They should consider the timing of the survey carefully. For example organizations are regularly understaffed in summer vacation and teachers will be busy around exam times. It is advisable to speak to internal survey specialists before commencing the fieldwork and to consider at an early stage the types of analysis needed. Observation. This technique used to develop an understanding of a process or outcome by getting closer to it and seeing it in action. The technique is good for establishing outcomes. File review This involves examination of key documents held by an audited body to gather overviews, insights and specific points on an audit issue. File review provides physical evidence to substantiate claims from interviews, focus groups and surveys. Auditors can look at a representative sample of case files to strengthen the evidence. When carrying out file review, auditors should consider how they will select files, and speak to statistical specialists to calculate appropriate sample sizes and sampling plans. Auditors need to ensure that by the time they start the file review they are aware of the information that they can and cannot obtain from the files. It is advisable to create a preformed in order to gather the necessary information - this will save time and assist analysis – and to consider at an early stage the types of analysis required. Data analysis Most audits involve some type of analysis in order to understand or explain what has been observed. A wide range of models or methods of analysis is used. Data analysis could take the form of: numeric assessment such as application of ratios and percentages to numeric data. more detailed statistical analysis; discussions on the findings within the audit team; studies of documentation and working papers. The analysis might also require comparisons of findings between: operations that work well and those that work less well – see analysis example below; one or more operation and an overview of the subject; An audited area and a similar audit area in another country. The final stage in the analysis of data involves combining the results from different types of sources. This phase involves weighing up arguments and assertions, consulting experts, and making comparisons and analyses. Tools that can used for data analysis include excel spreadsheets and software packages designed specifically for questionnaire entry such as SNAP and SPS Data Entry, SPSS Statistical Software and file interrogation tools such as IDEA. Preparation of performance audit report Experience shows that it is much easier to produce a good audit report if auditors develop a report outline first. The report outline contains the chapter headings and paragraphs headings for the report. The chapter and paragraph headings communicate the key messages effectively if they are expressed as statements summarizing the audit findings. The chapter headings summarize the key messages for each chapter and the paragraph headings summarize the key messages for each paragraph. Bullet points should go under the paragraph headings to indicate the sub-points to be included in each paragraph. Completing the Report Outline Once auditors are sure that they have sufficient relevant, reliable evidence which answers the audit questions they can complete the report outline and proceed to the report drafting stage. The report outline is the same format as the audit summary form, but without the audit evidence column. The last column contains bullet points to guide auditors on what to include in the report paragraphs for each chapter. Examples of two completed audit report outlines are demonstrated at the end of this chapter. Producing the report outline. The completed audit results form can be used as the basic structure for the report outline. The report outline has a pyramid format. The answer to the main question will point auditors to the title for the audit report. The answers to the main question and second level questions point auditors to what should be included in the Executive Summary. The answers to the second level questions also point auditors to statements for the chapter headings. The answers to the third level questions point auditors to statements for the paragraph headings, and the audit evidence points them to the bullet points within each paragraph. The format for the report outline. There are no strict rules for a report outline but a recommended format is: Executive Summary – answer to main audit question; Chapter headings based on answers to sub-questions; Paragraph headings based on third level questions; Annexes: Audit objectives and methodology; Detailed audit findings; Statistics. Developing the report outline. One way to develop the report outline is for the audit team to meet and work together to develop the paragraph headings for each chapter. The team can then agree the chapter heading which best answers the second level audit question and summarizes the contents of the chapter. The main messages for the executive summary can also be developed, and they should represent the main audit finding and the key points from each chapter. Drafting the Report Once auditors have developed the report outline, they know the basic structure of the report. Each paragraph heading should summaries the main points auditors want to make in that paragraph. They can then complete the text under each paragraph heading. If the chapter and paragraph headings are in the form of statements, the contents page will become a one-page summary of the report findings. Audited body - full report; National Assembly – full report, particularly executive summary; Media and citizens – press notice where appropriate. Auditors need to identify the 3 key messages and make sure that they are communicated effectively in the executive summary the body of the report and the press notice where appropriate. It may be necessary to take another look at the paragraph and chapter headings to ensure that they convey the key messages that auditors want their readers to receive. Drafting Conclusions and Recommendations It is important that audit conclusions and recommendations are: clearly signposted, meaningful and linked to the appropriate evidence. They should address underlying causes of concern, be useful, realistic and cost-effective. Recommendations should take into account any financial, legal, or practical constraints or those imposed by Government policy. If there is a clear solution, the auditors should recommend it. If there are a number of possible solutions, auditors can list them, stating the advantages and disadvantages of each. Auditors need to be sure that the audited body will be able to put their recommendations into practice, so they need to discuss with the audited body how this will be done, what it may cost, and over what time period it can be achieved. If the audited body requires help in implementing audit recommendations, auditors can discuss with it how it should go about getting such help. Review of the implementation of performance audit recommendations All auditors should carry out follow-up checks on the implementation of audit recommendation in order to ensure the effectiveness of the audit. Procedures for performance audit are similar to those for financial audit. The main procedures are as follows: Review of the audited body’s report on implementation of audit recommendations; Inspection of audited body’s procedures to establish whether, and to what extent, audit recommendations have been implemented; Assessment of the effectiveness of the audited body’s implementation of audit recommendations in delivering the outcomes specified by State Audit of Vietnam; Preparation of an audit report summarizing the results of the review and stating any further action that the audited body should carry out. The methodologies used to review the implementation of the audit recommendations will depend on the nature of the recommendations. Audit methodologies will include: Structured interviews with relevant staff from the audited body; Examination of files and documents; Review of systems and processes, including observation of work; Data collection and analysis if appropriate. If the audited body has failed to implement the audit recommendations effectively, the auditors should: Conduct a structured interview with the relevant senior officials responsible for implementation Establish the reasons that implementation was not effective; Agree corrective actions that the audited body will undertake, including da._.duces the efficiency for using the National budget, with the total investment of 354,306 million dong, of which 123,358 million dong has been paid. Assessing the real situation of Collecting and spending toll fee audit Collecting and spending toll fee audit findings In 2 months, audit association has evaluated effectiveness of Collecting and spending toll fee with many sides: effectiveness evaluation of Fee Collection, effectiveness evaluation of expenditure uses for road toll collection, effectiveness evaluation of using the modernization fund, effectiveness evaluation of using loan capital, effectiveness evaluation of using the road repair expenditure. The audit helped Vietnam Road way Ministry department to find shortcoming in using and spending toll fee; enhance effectiveness in management of using and spending toll fee; stopping false expenditure national budget; research and develop a new collecting fee model to enhance effectiveness in collecting toll fee; This audit get so close to audit the economy, effectiveness, efficiency in Collecting and spending toll fee, take the recommendations to enhance economy, effectiveness, efficiency in Collecting and spending toll fee. All of auditors tried their best, so this audit finding has very high persuasive. The audit has built basic of new audit method- performance audit; through Collecting and spending toll fee audit, investigate and improve performance audit, get performance audit theory to audit reality and implement more performance audit. Step by step, enhance economy, effectiveness and efficiency in national budget management and using economy resources. Make State auditor a chance to approach new audit method, turn them in to higher level audit force, since then, implement more performance audit in the future and training the other auditors. Shortcomings of Collecting and spending toll fee audit Although the audit obtained good results, this is the first time, the State Audit of Vietnam has implemented performance audit, mistakes can’t be avoided. They included: The auditors were not sufficiently rigorous to identify and report the control weaknesses associated with problems. Even though auditors reported problems, no mechanism was in place to ensure that. The scope of the audit was so wide and great, the audit quality was low, making audit report without caring, audit findings is not go into the details of performance audit contents. Communications with audited bodies is very important element of performance audit function. It is more important than in some other operations because management issues and output audit function are more qualitative than quantitative. In a manufacturing or distribution operation, one can measure the output in units and analyze it in many ways. Audit function have a lot of control over quantities and quality of the work they perform. However, it is difficult for management at audited bodies to understand the issues involved in running a successful audit function and producing quality audit reports. Audit management has a number of opportunities to express their issues and report on activities. Audit report results have not yet be care by the audited bodies because the quality of audit results have many weakness, not meet the requirements of them. In some audit team, auditors are so young, not enough economy and social experiences to implement performance audit, the other have not certificates…. So, they have not enough conditions to follow the dimensions of the score of the audit and requirements of the leader of the audit associate. Auditors don’t collect enough data so they don’t deeply understand about audited bodies. There are so many policy, implementation guiding document, so they can’t read all. When implement audit, it was easy to make mistake, inaccurate appraisals. Causes of shortcomings To be effective, policies and procedures need to be effectively communicated to all personnel involved in the audit. Some losses in performance audit in audited bodies occurred because relevant personnel were not aware of or misunderstood policies and procedures. So, Regulations and policies for performance audit should be enhanced. The Collecting and spending toll fee audit has so many objectives and has a wide scope, but the number of auditors was so limited. So each auditor had to work very hard while time was limited. It reduced the quality of audit. Based on information of the questionnaires answered, leaders give evaluations. With this big audit, there were so many mails sent and received, so it is too difficult for the leaders to take a audit guide. In some cases, inadequate knowledge and training of performance audit staff in field economic overall, electronic information systems and other highly sophisticated areas also contributed to performance audit problems. Because auditor did not have the necessary expertise, they was often hesitant to ask questions when they suspected problems. Performance auditors have not been equipped all audit techniques as independent auditors. Chapter 3: Recommendations and conclusion Requirements of enhancing effectiveness of Collecting and spending toll fee Independence Auditors should be independent of all activities they audit. It is essential that the auditors is, and is seen to be, independent of the area being audited. An auditor is guaranteed a measure of independence by legislative and ethical pronouncements. The standards in which auditors can be independence of the activities they audit. The first is to have sufficient organizational status to permit the accomplishment of audit responsibilities. The second is in part a mental attitude, and is compromised if staff assumes any direct operating responsibilities or audit an area for which they were responsible immediately before joining the audit department. Ethical behavior The objectivity is a mental attitude, and auditors should not be placed in situations in which they feel unable to make professional judgments. Audit staff assignments should be made to prevent possible bias or conflicts of interest; Auditors should immediately report any conflicts of interest to the head of the audit department; Staff assignment should be periodically rotated; Auditor should not assume operating responsibilities; It is not appropriate for auditor to design, install or operate systems or draft procedures for the system because their objectivity may be impaired or reduced. This evaluation requires member to exercise honesty, objectivity and diligence in the performance of their duties. Auditors are prohibited from accepting anything of value from an employee, client, customer, supplier or business associate of their entity which would impair, their professional judgment. They must also refrain from entering into any activity that could result in a conflict of interest. The code of Ethic requires members to maintain high standard of professional competence and they should not knowingly be party to any illegal or improper activity. Audit or competence Professional proficiency: It is requires audits to be performed with proficiency and due professional care. Therefore, it is the audit department’s responsibility to assign persons who collectively possess the knowledge, skills and disciplines needed to conduct the audit. The work should be properly supervised and auditors should comply with professional standards of conduct, which include the Code of Ethics. Auditors need to maintain their professional competence through continuing education. Target requires auditors to exercise due professional care in performing audit. They must apply the care and skills expected of a reasonably prudent and competent auditor in similar circumstances. This requirements point out that due professional care requires auditors to be alert to the possibility of wrongdoing, errors and omissions, waste, inefficiency, ineffectiveness and conflicts of interest Scope of auditor’s work: Target states that the scope of auditing should encompass an examination of the adequacy of the entity’s audit activity to determine whether it provides reasonable assurance that the entity’s objectives and goal are being met effectiveness, efficiency and economically; an examination of the effectiveness of the entity’s audit activity to determine whether the system is functioning as intended; a review of the quality of the performance to determine whether the entity’s objectives and goals have been achieved. Thus the scope of the auditor’s work include: looking at the reliability and integrity of information; compliance with policies, plans, procedures, laws and regulations; safe- guarding of assets; economical and efficient use of resources; accomplishment of established objectives and goals for operations or program. Research findings Enhancing effectiveness of performance audit methods It is easy to get too close to the audit topic, and lose perspective on the quality of the evidence. It can therefore be helpful to obtain the views of independent observers, such as internal reference partners or members of an Expert Panel. Constructive discussion of initial findings with the audited body is another important way to establish the quality of the evidence gathered, whilst also preparing the audited body for the clearance process. Most performance audit examinations produce a mass of evidence on paper. Teams should therefore ensure that a simple audit trail exists. This is particularly helpful if findings are challenged by the audited body during the clearance process. Auditors must record and retain key documents including: major decisions influencing the examination and its management; key correspondence and other contact with the audited body; the main items of evidence, their source, and the analysis undertaken. Quality of evidence is vital, since performance audit is open to judgment. INTOSAI Auditing Standards state that ‘Competent, relevant and reasonable evidence should be obtained to support the auditor’s judgment and conclusion regarding the organization, program, activity or function under audit’ (INTOSAI Auditing Standard 3.5.1). At the planning stage it is advisable to choose audit tests that result in evidence that is easy to evaluate. Audit evidence should be sufficient, measurable in quantity or convincing in quality and able to persuade a reasonable person that conclusions and recommendations are justified and supported. Audit evidence should be relevant, logical and sensible in relation to audit objectives and criteria and noting the purpose, source, and scope of evidence. Audit evidence also should be reliable, consistent with facts and valid, corroborated by more than one source and conform to principles (documentary rather than oral, direct rather than indirect; original rather than photocopies). Enhancing effectiveness of auditors organization and management In every management and specific operations, specialization is the foundation of effect and quality improvement in work. Up to present, state-performance audit has already shaped a fixed specialization (professional national auditors and auditing officers). In reality, however, specialization here still is too general with its wide sphere. In the condition of deploying financial report auditing, the limit of that organization has not appeared, but on executing the performance audit, due to the diversity of quality, size and deep requirement of specialization, auditing has become an urgent mission. Specialization need to be executed on two side of operation as: In every management and specific operations, specialization is the foundation of effect and quality improvement in work. Up to present, state-performance audit has already shaped a fixed specialization (professional national auditors and auditing officers). In reality, however, specialization here still is too general with its wide sphere. In organizing audit activities, it is especially necessary to share the work to the level of officers and groups, and controlling audit activities as following the groups having the same features in operations functions. For example, for the office which control budget auditing, it should be divided into management units for the public career units and direct the auditors to manage each sub majorities such as education, health, and science research During the auditing organization activities, it is necessary to change the general auditing activities to intermediary ones following the party’s method. In which, each uninterrupted auditing activity includes a series of audited bodies, which have the same features of field of operation as well as function of operation, especial with the using national budget units. Enhancing audit quality control and assessment Quality control of performance audit should consider the time, cost and technical quality of outputs. The audit manager and SAI management are responsible for ensuring that the performance audit is completed within budget and on time. The audit manager is also responsible for ensuring technical quality of audit work. (INTOSAI Audit Standards 2.1.26-28, 2.2.36 and 3.1.4). Line Management Review: The first step in quality assurance is line managers’ review of auditors work. This is fundamental. Managers must check the work of their performance audit staff in order to ensure that auditing standards are being met and to raise quality. Manager level quality control checks: There are four stage of the audit at which managers will need to review audit quality: Planning, fieldwork, report outline, report completion. At the planning stage the manager should check that the original reasons for selection of the audit topic are properly reflected in the plan. The plan format is in accordance with the approved approach. The issues analysis diagram – attached as an Annex – presents a logical structure of audit questions, there are no major areas of enquiry missing from the audit questions. The proposed audit will examine all the main issues and risks that an knowledgeable reader would expect. The main audit question in the issues analysis diagram focuses on at least one of the three performance audit principles – economy, efficiency and effectiveness. The audit methodology annex has been completed correctly and shows clearly what evidence is required to answer the audit questions. At the fieldwork stage the manager should check that the audit programs supporting the audit tasks needed answer the audit questions and obtain the evidence required in the audit methodology. At the beginning of each week, that individual auditors have completed tasks for the previous weeks and obtained the correct evidence. At the report outline stage the manager should check that the evidence in the audit results schedule is sufficient, relevant and reliable. The main report statement is supported by the sub-statements and third level statements, and that the audit evidence supports the third level statements. At the report completion stage the manager should check that all audit work included in the audit plan has been completed, the audit evidence fully supports the audit findings. All relevant audit findings are included in the report outline and the answers to the audit questions are logical and convincing. At the report drafting stage the manager should check that in each chapter, answers to the issues analysis questions are based on logical arguments, the report contains up to three key messages that are clearly stated in the executive summary. The conclusions and recommendations are based on convincing and reliable evidence that is clearly explained in the report. The recommendations will lead to improved outcomes or financial savings and the text of the report is easily readable and easy to understand. Quality improvement of selecting and training auditors - On selecting auditors: It is necessary to have long-term strategies of selection, training and using auditors. Currently sixty percent of those who had ever worked in financial positions, enterprises, banks and universities should be selected due to their rich real experience and high professional skills. Forty percent of those are graduated students, who update the latest knowledge from their universities and they are active in work. Both of these selected auditors will assist each other. - On training and improving auditors The new auditors and in-work auditors should be trained periodically following these contents: + Understand the standards and rules related to performance audit in some specific fields and the latest performance audit technology + Regularly participate classes for updating knowledge on economics, finance, accountancy, IT skills and the latest national policies. + Regularly participate in meetings, researches to improve the skills and process of performance audit - Build and implement the method of auditors’ level, ability and professional ethics control. This activity can help state auditors in consideration, estimation and treatment the auditors’ professional ethics, if any. In other hand, this can help auditors in consideration their own work quality, then try to self-improve their ethics, to enhance their professional skills and successful complete their missions. Recommendations Recommendations to audited bodies In the first meeting, audited bodies have to setup a formal relationship, informal relationship with auditors. An open relationship is the basing of implementing audit, creating good conditions for auditors in auditing Get in touch with audited bodies leaders. Audited bodies leaders is an important part to solve almost of potential audit problems which arise between auditors and audited bodies. At the same time they are the one who can direct the implementation audit recommendations. Collecting their suggestion about what is auditing, let them know what change in the audit implementation. Since then, they can understand about the audit process and cooperate with audit team in producing audit evidences and creating good conditions for auditor in auditing. Recommendations to the State audit of Vietnam Improve the network management structure and standard norms in audited bodies. The most important foundation as well as the object of performance audit is management and internal auditing structure and standard norms system in economy, technique and finance. At present, self-control structure and organization of all audited bodies has completely shaped. In which, however, there are limit on lacking the standards, norms of inputs and output and incomprehensive. To deploy the role of performance audit, it should be carried out following these steps: - The government should direct all braches and localities to build comprehensively the mainly economic, technical, and financial standards in using input and output elements for public service operations to become the foundation of management and auditing. - All the branches and localities should direct their own subunits to build comprehensively internal control regulations. This is not only a foundation of self-control operation and management quality improvement but also a test condition to test and control all level management and auditing. Build the road to deploy performance audit of the State Audit of Vietnam. The functions of performance audit of state auditing are verified in decree No.93/2003/NĐ- CP. To deploy the executing of performance audit, it is necessary for the state auditing needs to have an executing process, which will meet the requirements of general financial innovation executing and the real conditions of state auditing, specifically: - In the period of 2009 to 2012, the State Audit of Vietnam should study and promulgate the instruction document on performance audit process and standards, as well as to deploy cultivating professional skills for auditors, that will supplying for the plan of periodic executing the performance audit on several main fields by the year of 2010. - In 2015 performance audit will be deployed into all units belonging to object auditing of state auditing. - Due to the importance of performance audit, therefore, the performance audit will be executed in the way of not only executing but also continuous researching and improving. Recommendations to agencies of government Regulating the procedures, policies particularly for performance audit The agencies such as the Ministry of Finance, National budget and finance commission of National Assembly, Professional Association need to have formal legal and details documents to guide about performance, procedures, process, interests, responsibility, etc to audited bodies, State Audit of Vietnam and other agencies to know more about performance audit and the difficulty in the audit process to regulations have reality and need to hasten that issuing process. With regulations for performance audit auditors: Government allow the State Audit of Vietnam setup Audit Academy to train the audit knowledge and experience for auditors about performance audit. The auditors have to have certificate at here who want to implement performance audit in audited bodies. Conclusion Basing on a number of research methodologies, especially methodologies of performance audit which have been established and applied in reality, the thesis “Performance audit with enhancing effectiveness of Collecting and spending toll fee” has achieved following objectives: Proving a systematic overview of theoretical literature about process and methodology of performance audit in Collecting and spending toll fee audit. Firstly, the thesis has mentioned about theoretical framework of performance audit, procedures of it and a brief description of performance audit process. Secondly, described and analyzed the real situation of collecting and spending toll fee audit of the State Audit of Vietnam, then the thesis recommended solutions for enhancing effectiveness of performance audit through Collecting and spending toll fee audit analyzing. Finally, the thesis has a conclusion that: although there are some specific differences in legal form, a standard and popular process of performance audit often includes four steps: preparation, implement, making auditing report and reviewing implementation of performance audit recommendations. In addition, basing on State Audit of Vietnam’s experiences in financial statement auditing, as well as recent “Collecting and spending toll fee” audit affair, the thesis has provided solutions to enhance effectiveness of performance audit. With the objective of enhancing effectiveness of performance audit, the thesis has proposed a number of recommendations, such as: The details of improvement of the Law and professional regulations of state-audit include: Improving decisions, regulations of the state-audit Law, improving standards of audit and improving the system of auditing processes. The most important foundation as well as the object of performance audit is management and internal auditing structure and standard norms system in economy, technique and finance. At present, self-control structure and organization of all audited bodies has completely shaped. In which, however, there are limit on lacking the standards, norms of inputs and output and incomprehensive. Developing the appraisement and monitoring of auditing quality. Enhancing auditors’ awareness of knowledge and increasing the quality of recruiting and training auditors. Recommendations are as following: Recommendations to audited bodies: Mainly collecting their suggestion about what is auditing, let them know what change in the audit implementation to get in touch with audited bodies leaders then solve almost of potential audit problems which arise between auditors and audited bodies. Recommendations to State Audit of Vietnam: Improve the network management structure and standard norms in audited bodies to deploy the role of performance audit. Build the road to deploy performance audit of the State Audit of Vietnam. It is necessary for the State Audit to have an executing process, which will meet the requirements of general financial innovation executing and the real conditions of state auditing. Recommendations to government: Form the legal and details documents to guide about performance, procedures, process, interests, responsibility, etc to audited bodies, State Audit of Vietnam and other agencies. Relying on the above results, the thesis has achieved the purposes of researching in terms of theoretical and practical aspects. The thesis has not only contributed the literature background to study, build up and improve the process of performance audit but also provided a basis of applying performance audit in Collecting and spending toll fee audit. In addition, the thesis has supplemented a resource of reference for studying and training performance audit which is considered as a new field in state-audit. References In Vietnamese Bộ Tài chính (2003) Hệ thống Chuẩn mực Kiểm toán Việt Nam. Quyển II, III, IV. Nhà xuất bản Tài chính Bộ Tài chính (1998) Hệ thống Chuẩn mực Quốc tế về kế toán, kiểm toán. Đại học Kinh tế TP HCM (2004) Kiểm toán Nhà xuất bản Thống kê Kiểm toán Nhà nước Báo cáo kiểm toán Cục Đường bộ 2006 Kiểm toán Nhà nước Báo cáo kiểm toán Việc thu và sử dụng phí giao thông đường bộ 2006 Kiểm toán Nhà nước Báo cáo kiểm toán 2006 Kiểm toán Nhà nước (2006) Kỷ yếu hội thảo Kiểm toán chuyên đề và Kiểm toán hoạt động In English INTOSAI Audit standards INTOSAI Audit Process Business School- NEU (2004) Research Methodology EC Project (2007) Performance audit guide G.S. Gill and G.W. Cosserat (1996) Modern Auditing in Australia. John Wiley & Sons. John Dunn (1996) Auditing, Theory and Practice. Prentice Hall, Glasgow Micheal P. Cangemi and Tommie Singleton (2002) Managing the Audit Function Acknowledgements I would like to express my sincere thanks and appreciation to my supervisor Dr. Nguyen Thi Phuong Hoa, Head of the Auditing Department, Accounting Faculty, NEU, for her invaluable guidance, suggestions and encouragement throughout the Master course. I also take this opportunity to thank Dr. Tran Thi Van Hoa, Rector of NEU Business school and the other teachers at Business School- NEU, for providing me valuable assistance throughout the course of E-MBA program. I extend my special thanks to Mr. Le Hoang Quan, Vice General Auditor- State Audit of Vietnam and other auditors answered the interview and questionnaire for me, for their guidance; Associate Professor Dr. Ngo Tri Tue, Director of Central of Cadre Training and Cultivation- State Audit of Vietnam, Dr. Thomas Kertess, Mr. Karlheinz Reill, Mr. Tien, GTZ expert advice for guidance and support this study. I am also thankful to Mr Hoan, Mr Ngoc and other leaders and staffs of Vietnam Road way Ministry department and Road way Area Managers for supporting me with valuable materials. Finally, my deepest thanks go to my parents, my family for their invaluable, inspirational and spiritual supports. TABLE OF CONTENTS List of abbreviations SAV State Audit of Vietnam INTOSAI International Organization of Supreme Audit Institutions ASOSAI Asian Organization of Supreme Audit Institutions CISA Certificated Information System Auditor CMA Certificated Management Accountant CPA Certificated Public Accountant F/S Financial Statements List of tables Table 1.1: Audit Methodology Analysis Table Table 2.1: Typical Risks Table 2.2: Worked audit summary form Table 2.3: Audit questions on performance targets List of figures Figure 1.1: Meaning of economy, effectiveness and efficiency in performance audit Table 1.2: Audited body’s activities Figure 1.3: Typical risk factors to consider in government ministries Figure 1.4: Main categories of risk that affect government ministries: Figure 1.5: Examples of Audit Methodologies for Fieldwork Figure 1.6: The system-model type a Figure 1.7: The system-model type b Figure 1.8: The system-model type c Figure 1.9: The complete system model Executive summary Auditing activities become increasingly important in the market- based economy. Performance audit is a type of auditing, which occurs later than financial audit. Performance audit emerges because of increasing demand of efficient usages of source. Performance audit is implemented primarily by State Audit and Internal audit. Unlike tradition audit (financial audit), performance audit is a new audit type. Its objectives and contents are multiform. Performance audit is a complicated audit field and being developed. Firstly, this thesis mentions about theoretical framework of performance audit, procedures of it and a brief description of performance audit process. Secondly, the thesis analyzes Collecting and spending toll fee audit process by the State Audit of Vietnam. Based on that, recommendations for enhancing effectiveness of performance audit through Collecting and spending toll fee audit are provided. Finally, the thesis draws a conclusion that: although there are some specific differences in legal form, a standard and popular process of performance audit often includes four steps: preparation, implementation, preparation of audit report and reviewing implementation of performance audit recommendations. In addition, from the State Audit of Vietnam’s experiences in recent “Collecting and spending toll fee” audit affair, the thesis has provided recommendations for enhancing effectiveness of performance audit. In the course of this research, performance audit activities have been investigated thoroughly and then some recommendations have been given in hoping that performance audit activities will be better in the near futures. Enhancing effectiveness of performance audit is a long and continuous process to both of the State Audit of Vietnam and auditors. ._.