Performance Audit: Definition, Implementation, and Examples

There are several types of audits, one of which is the Performance Audit. Audit is a systematic and independent examination process to assess an object against certain criteria. The object can be financial statements, compliance, or the performance of a program or activity.

The following is a definition of a performance audit along with examples of its implementation in accordance with established standards, as well as how it differs from other types of audits.

What is the definition of a performance audit?

A performance audit is a type of audit or check on the execution of duties, work performance, and functions of a division within an agency or institution, whether government or private, although its formal regulation in Indonesia is clearest for state financial management and government agencies.

In Indonesia, Law No. 15 of 2004 Article 4 paragraph (3) defines a performance examination as an examination of state financial management consisting of an examination of the economy and efficiency aspects and an examination of the effectiveness aspect. A performance audit compares performance with relevant criteria and then reports the results to interested parties. The difference from management audit: a performance audit assesses the achievement of programs or activities against targets using measures of economy, efficiency, and effectiveness, whereas a management audit assesses how the organization is managed.

In general, performance audits consist of several aspects, which are usually known as the 3E aspects. This aspect consists of three things, namely Economic Aspects, Work Efficiency Aspects, and Work Effectiveness Aspects.

These three aspects aim to provide an assessment of an achievement, target, or achievement of the audited division in an agency.

In a special performance audit of government agencies, has been regulated by Government regulation (PP) number 60 of 2008 on government internal control system. Article 48 paragraph (2) states that the Government Internal Supervisory Apparatus (APIP) carries out internal supervision through audits, reviews, evaluations, monitoring, and other supervisory activities. Article 50 divides these audits into performance audits and audits with a specific purpose, with performance audits covering thrift, efficiency, and effectiveness.

At the regional government level, performance oversight also covers evaluation of SAKIP implementation, which is discussed in the article SAKIP evaluation by the Inspectorate.

It is hoped that through this audit process, the APIP division will be able to plan and carry out audits in the PKPT or Inspectorate Annual Supervision Work Program at government institutions in the Republic of Indonesia.

What is the purpose of a performance audit?

In brief, a performance audit aims to:

• Assess the 3E aspects — ensuring a program or activity is carried out economically (cost-efficiently), efficiently (optimal input-output ratio), and effectively (achieving the set targets).
• Assessing compliance program implementation against applicable regulations, policies, and procedures.
• Detect irregularities or inefficiencies as early as possible, especially for programs that have only just started or are high risk.
• Provide improvement recommendations that can be followed up by management or the relevant agency to improve performance in the next period.
• Support public accountability — especially at government agencies, by reporting performance assessment results to stakeholders.

How is a performance audit conducted?

In carrying out an audit, there are several objects that become the target. The selection of objects usually considers risk and supervision priorities, not merely the size of the budget.

In carrying out performance audits at regional governments, the objects are generally regional apparatus organizations (OPD) selected based on risk and supervision priorities.

The implementation is coordinated with the local government, that is the city, regency, or provincial government. According to PP 60/2008 Article 49, the Provincial Inspectorate and the Regency/City Inspectorate supervise the activities of regional apparatus funded by the regional budget. 

The Inspectorate and APIP draw up a supervision plan, and the approval mechanism follows the provisions of each regional government.

Once the plan is set, the performance audit is carried out. In government agencies, testing generally compares targets with achievements over a period, for example against key performance indicators (IKU) and data in the field.

In addition, auditors may use other techniques such as public service surveys, benchmarking, and mapping of activities over a certain period, according to the audit objectives.

What is an example of a performance audit at a government agency?

Audit implementation is also based on the organization's risk assessment or is detected from the results of previous audits, driven by the interests of stakeholders, the organization, or other parties for certain reasons.

A performance audit can be triggered by the results of a risk assessment or indications of a problem in a program, especially a program that has only just started. If the indications point to fraud, PP 60/2008 Article 50 paragraph (3) and its elucidation classify investigative audit as an audit with a specific purpose, not a performance audit. An example of the implementation steps follows: 

A. Introduction

To find out the picture of the auditee towards a program to be audited.

B. Detailed Audit Execution

A detailed audit to obtain a picture of the performance of the audited OPD. For example, the assessment may be grouped into the aspects of planning, budgeting, implementation, administration and bureaucratic system, and public services, according to the objectives and scope of the engagement.

The aspects assessed may differ between agencies, following the objectives and scope of each engagement.

What is the procedure for conducting a performance audit?

The stages of a performance audit may differ between agencies and between engagements. The following list is an example of a work sequence used by APIP and Inspectorates, not a standard sequence from regulations. A summary of stages across audit types is available at audit stages.

1. Initial discussions are held with the auditor and general information about the audited activity is collected, identifying management elements or areas that need additional examination to refine the conclusions.
   
2. Then conduct management control testing regarding the implementation of Good Corporate Governance (GCG) by audit management and its organization. This is done in order to provide sufficient confidence in the success of the operation, compliance with applicable regulations and laws.
   
   After that, the auditor sets testing priorities and refines the audit objectives to gather more adequate evidence.
   
3. What APIP does next is measure and evaluate the IKK (Activity Performance Indicator) by comparing the achievement of performance indicators against the objectives that were set, and analyzing to identify the contributing factors.
   
4. An operational assessment of procedures and methods of procedures, organizations, and programs with the aim of evaluating the achievement of an objective or target using the 3E method, which is conducted against some or all objectives.
   
5. The last is the creation KKA or Audit Working Paper.

What is the difference between a performance audit and a financial audit?

Here's the difference between financial audit with the performance audit is as follows.

1. A performance audit assesses whether a program or activity has achieved its objectives and performance results in line with targets, using measures of economy, efficiency, and effectiveness. A financial audit, by contrast, is an examination of financial statements (Law 15/2004 Article 4 paragraph 2).
2. Performance audits focus on a program and work achievements in an organization, especially government organizations or agencies.
3. A performance audit requires a wider range of skills, including social science and evaluation methods (INTOSAI GUID 3910). A performance audit also has its own standards, namely ISSAI 3000 internationally and the performance examination standards within the BPK SPKN in Indonesia.
4. Assessment criteria in a performance audit are set specifically for each engagement according to the audit objectives and questions, but must still be relevant, understandable, complete, reliable, and objective (GUID 3910, section on audit criteria).
5. Methods in a performance audit vary more because they adapt to the audit objectives and questions of each engagement, so the structure and content of the report can differ between engagements.

FAQ About Performance Audits

Those are some detailed insights into the definition and procedures of a performance audit, along with how it differs from a financial audit.

A performance audit is an arrangement and conduct of audits used to check, evaluate, and assess the fitness of performance and functions in an agency, with formal regulation that is clearest for state financial management.

In the government sector, performance audits are carried out by APIP such as BPKP and the Inspectorates as internal supervision, and by the BPK as external examination.

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