Performance Audit Practice Statement

A performance audit is an audit which evaluates whether an organisation or government program is performing effectively, economically and efficiently, and in compliance with all relevant legislation.

It can cover all or part of an agency’s activities, or the activities of a number of agencies, and can include consideration of public sector services or functions that are delivered through contracts with private or not-for-profit providers (known as associated entities).

Performance audits that consider the services or functions delivered by associated entities are referred to as ‘follow-the-dollar’ audits.

Section 15 of the Audit Act 1994 (the Act) governs performance audits. These audits are funded by Parliament, not the agency being audited.

Performance audit reports cannot question the merits of government policy objectives.

Why have performance audits?

Performance audits offer independent assurance to Parliament and the community that public money has been spent economically and that public authorities are operating effectively, efficiently and in compliance with all relevant Acts.

Performance audits may also identify better practice and are a catalyst for continuous improvement in the public sector.

Access to information

The Act provides the Victorian Auditor-General’s Office (VAGO) with full access to information from an agency or an associated entity irrespective of any obligations for confidentiality. This overrides any other legislation that might restrict disclosure, such as secrecy or privacy laws.

All of the information VAGO receives, and working papers that VAGO creates during an audit are exempt from the Freedom of Information Act 1982. This means these documents cannot be accessed from VAGO by any party.

Section 11

The powers to access information are outlined in section 11 of the Act. Generally authorities provide us with the information we ask for, but when they do not we can issue a notice under section 11, and in accordance with our Procedure for Issue of Section 11 Notices, compel them to do so.

We have the power to request and take copies of a broad range of documents, including documents that:

  • are Cabinet-in-Confidence
  • are in draft form
  • do not belong to a person but are in their possession.

When we use section 11 of the Act to seek information for an audit, we apply procedural fairness. For instance, if a person is to be examined on oath, a notice under section 11 must state the nature of the matters about which the person is to be examined. The person is entitled to legal representation, and if the person is under the age of 18, has a mental impairment or insufficient knowledge of English to understand the questions, there are steps that the Auditor-General must take to support the individual. Individuals may complain to the Victorian Inspectorate if they believe VAGO has not exercised our coercive functions properly.

How are audit topics selected?

The Auditor-General selects performance audit topics after extensive consultation and research. Our Act requires us to consult on the selection of topics with the Public Accounts and Estimates Committee (PAEC). We also:

  • undertake wide sector consultation for example, with government agencies, community interest groups, relevant academics, other oversight bodies 
  • review publicly available information such as annual reports, research papers, statistical information
  • consider matters raised with VAGO by the public.

Topics are then selected following consideration of risk, materiality, public interest, and the potential to improve public administration and/or the achievement of outcomes. The Auditor-General’s proposed topics are detailed in VAGO’s annual plan, which is tabled in Parliament.

Some audit topics are ‘whole-of-government’ or cross multiple agencies. Agencies for inclusion in such audits may not be specifically identified in the annual plan. Agencies should review these audits in the annual plan and consider that, where they have significant activity or involvement in the proposed topic, they may be included.

The performance audit process

There are three key phases during the performance audit process.

Planning phase

VAGO initiates the audit by writing to the head of the agency to advise of the start of audit planning. The letter names the VAGO Engagement Leader responsible for the audit, who is usually a senior VAGO staff member. An ‘engagement plan’ is also provided outlining the team, time lines and key milestones for the audit.

The agency nominates a contact person to facilitate the audit process. The contact person should have sufficient seniority and understanding of the audited area to coordinate the audit on the agency’s behalf and to provide an informed view of the agency’s position on relevant issues.

An entry meeting is held, which the Engagement Leader for the audit attends, and which should be attended by appropriately senior agency staff. Background information is obtained from the agency about the audited area and time lines and expectations are set out. The audit team and the agency should identify day-to-day staff contacts for communications and coordination of meetings and evidence requests. Often during planning and/or conduct, VAGO staff base themselves at the audited agency for a period of time to ease access to information and communication. This should also be arranged at the entry meeting.

We engage with agencies on the scoping and planning of audits continuously. This means that VAGO may commence collecting information before an audit has begun, to inform initial audit scoping and/or as part of the annual planning and topic selection process. Early collection of information also provides the agency with an opportunity to brief VAGO staff and ensure understanding of the relevant issues and context.

VAGO develops an ‘audit specification’ that outlines the audit objectives, issues and agencies to be examined, and an ‘audit plan’ that further describes the audit objectives, criteria and scope. The agency (and PAEC in some cases) is consulted and asked to provide feedback on the draft audit specification and plan. In the case of a ‘follow-the-dollar’ audit, VAGO may also consult an associated entity. The Auditor-General considers any feedback and approves the final audit specification and plan. A copy of the final audit specification and plan is sent to the agency a reasonable time before the commencement of the conduct of the audit.

Conduct phase

VAGO gathers audit evidence in line with Australian Auditing Standards and through its powers in the Act. Where possible, agencies are encouraged to provide information electronically. Common types of evidence provided for performance audits include:

  • meeting minutes
  • project plans
  • evaluation reports
  • performance data
  • business cases
  • contracts and tender documents
  • Cabinet-in-Confidence submissions.

The agency’s ability to provide sufficient and appropriate (i.e. relevant and reliable) evidence is fundamental to developing robust audit findings. Failure to provide complete and accurate evidence can lead to incorrect audit findings and delay the audit process. The Act gives VAGO the right to access all information in the possession, custody or control of an agency. VAGO understands the need to inform executive staff of material provided to VAGO, but this can occur in tandem with the provision of that information. Agencies must not delay the provision of requested documents in order to obtain executive approval. Relevant draft material should also be provided with information about its status and time lines for finalisation. Updated drafts or final versions should be submitted as they become available over the course of the audit.

Further information on audit evidence is covered in our Audit Evidence Brochure, available at: www.audit.vic.gov.au/about_us/the_audit_process/audit_evidence_brochure.aspx.

The agency’s contact person and senior management are progressively briefed on evidence gaps, emerging issues and preliminary findings. This is done formally and informally, verbally and in writing during the audit.

It is also ideal for the audit team and agency staff to begin discussing audit findings and recommendations as early as possible. This assists in developing recommendations and agency responses that are practical and will meaningfully address the issues identified.

Escalation of issues

It is important for agency contacts to escalate any issues that require the attention of more senior agency or VAGO staff early, so they can be addressed promptly. Within VAGO, our escalation process is as follows:

Escalation process while auditing

Reporting Phase

The Act requires VAGO to provide a proposed draft of the audit report to the Secretary of the Department of Premier & Cabinet, audited agencies and, in the case of follow-the-dollar audits, to associated entities (see section 16(3)).

There are some types of sensitive and confidential information (such as Cabinet-in-confidence or trade secrets) that may only be included in a report if the Auditor-General considers it is in the public interest.

VAGO usually issues an earlier provisional draft of the report in addition to the proposed draft, particularly for larger performance audits. The agency is asked to confirm the accuracy of the provisional draft. It is the final opportunity to correct errors of fact or context, before the proposed report is issued. VAGO provides the agency with an acquittal of its response to the provisional draft report.

VAGO then issues the proposed report for comment to agencies and associated entities. Public sector agencies are requested to include actions to address recommendations and accompanying time lines. This provides an important opportunity to advise Parliament and the community about acceptance, or otherwise, of recommendations, and how and when they will be addressed.  

VAGO recommendations are directed only at public sector agencies and not associated entities. Agencies and associated entities (where relevant) are given 10 business days to submit their response, or a summary as agreed, which is printed in the tabled audit report. They are solely responsible for the accuracy, balance and fairness of their response. The head of the agency and associated entity (where relevant) should be aware of the status of their response to the audit. If warranted, the Auditor-General may include additional comments in the report addressing their response.

In the very rare instance that the proposed audit report includes an adverse comment or opinion about a named person who is an officer or employee of the agency referred to in the report, the agency head must give that person a reasonable opportunity to respond to the agency head in relation to the adverse material.

Under the Act, information from the proposed report cannot be disclosed until after the Auditor-General has published the report, unless it is in the course of performing official duties. There are penalties for improper disclosure.

At times, the Auditor-General may wish to convey a level of detail regarding audit findings to an agency that is not warranted in the published report. In these circumstances a management letter may be provided to the agency, in line with common practice in the auditing profession in Australia and internationally.

Prior to tabling the report in Parliament, VAGO sends a letter to the agency head confirming the tabling date.

After the performance audit

Briefing Members of Parliament

In the days just before tabling, VAGO offers verbal briefings on the report to any relevant ministers.

Shortly after tabling a report in Parliament, VAGO briefs Members of Parliament on the audit report findings, conclusions and recommendations. Copies of the reports and other relevant communications such as presentations and media releases are available at www.audit.vic.gov.au.

Follow up

Parliament and the Executive Government have the power to act on audit recommendations. PAEC selectively follows up matters raised in Auditor-General’s reports. PAEC may seek a briefing from VAGO and may also require an agency to provide further information and/or give evidence at a hearing.

The Auditor-General may also choose to undertake a follow-up performance audit that examines whether agencies have appropriately responded to past recommendations and issues. A follow-up performance audit may take a narrow focus, seeking to examine agency actions directly in response to some or all past recommendations. Alternatively, a follow-up may have a broader focus and review past recommendations as well as new, related areas of focus. Follow-up audits may be highlighted in the annual plan or added to VAGO’s program as need arises.

Agencies are therefore encouraged to monitor their responses to audit recommendations on an ongoing basis.

Agency feedback

Following a performance audit, VAGO sends a survey to the audited agency seeking feedback. VAGO is interested in the agency’s views on the audit process and the Parliamentary report, and uses the results to identify areas for improvement, and to report on its own performance to Parliament.

Key points to remember

Prepare early for the audit

  • Understand the objectives, scope, focus and timing of the audit—they are generally foreshadowed in the annual plan tabled in Parliament each year, and detailed in the audit specification and plan.
  • Provide timely and unrestricted access to information.
  • Review relevant plans, records and source data, and make sure they are up-to-date and available for the audit team.
  • Gather documentation on how your agency monitors and measures the effectiveness, economy and efficiency of the audited activity and have the most recent results ready. 
  • There are no legal impediments to audit access—the Act has provisions that can compel access if needed.

Consider communication and coordination

  • Determine how your agency will communicate and coordinate internally regarding the audit, and with other included agencies and associated agencies where appropriate.
  • Check that the staff likely to be needed will be available for the audit.
  • Liaise regularly—there are set briefing points throughout the audit, but maintain regular contact, and engage on significant audit issues as they arise.
  • Start talking about recommendations and responses early.

Carefully review the provisional draft 

  • It is the last opportunity before the reporting time frames mandated in the Act apply.

Reporting and follow-up phase

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Last updated on 27/01/2017