performance audit with enhancing effectiveness of collecting and spending toll fee

Introduction
1. The necessaries of the topic.
Performance audit is a type of audit which has been developed in the world
recently. The development was started in 1970s of the XX century in the public area
and then spread to the private sector. In the U.S., Canada and some European
countries such as Sweden, Germany members of parliaments in these countries
required to provide information on the effectiveness and efficiency of spending of
funds. They did not satisfy with the traditional audit- 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.
1
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;
2
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.
3
Chapter 1: The theoretical framework of
performance audit
1.1The basic concepts of performance audit
1.1.1 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.
1.1.2 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;
4
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.
1.1.3 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
5
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.
1.1.4 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
(Source: Performance Audit Guide- EC project)
Economy
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
6
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/
7
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.
1.1.5 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?
8
 Are the right things being done?
1.1.6 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,
9
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
10
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?
11
• 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
12
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
1.2 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.
2.2 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.
3.2 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.
13

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 within 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;
14
• 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?
4.2 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.
1.3. Process of performance audit
1.3 Preparation of performance audit
15
The approach to performance audit planning described in this manual covers the
following stages:
1.1.1. 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;
16
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)
1.1.2. 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.
17
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)
18
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.
1.1.3. 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.
19
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
• Objectives,
targets or
standards;
Facts:
• numerical
• The audited
body or agency;
• Other public
In person
• Observation ;
20
level
question here
Remember
that the
answer to the
audit
question may
be partly yes
or partly no.
• Past
performance, or

performance by
other
organizations;
• The law,
professional
guidance, or
leading practices;
• Customer/user
expectations.
evidence;
• descriptive
evidence;
• qualitative
information.
organizations;
• Published
research;
• Customers or
users;
• Suppliers;
• Expert
groups.
• 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.
1.1.4. 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.
21
2.3 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.
1.2.1. 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

22
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)
1.2.2. 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
23
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.
1.2.3. 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.
1.2.4. Surveys
24
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.
1.2.5. 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.
1.2.6. 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.
1.2.7. 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:
25