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Definitions
The principle of economy requires that the resources used by the audited entity in the pursuit of its activities shall be made available in due time, in appropriate quantity and quality and at the best price.
Risks and issues relating to keeping the costs low
Issues of economy arise when an entity or activity could reduce the costs of inputs significantly for a given level of outputs or results. General risks in this area can include:
- waste, i.e. using resources which are not necessary for the achievement of the desired outputs or results;
- overpaying, i.e. obtaining resources which are used, but could have been obtained at a lower cost; and
- gold-plating, i.e. paying for a higher quality of input than that required to achieve the desired outputs or results.
An audit of economy is therefore concerned with determining whether the most appropriate and lower-cost inputs are chosen to achieve the given objectives. It will deal with issues such as whether:
- the audited entity acquires the appropriate type, quality and amount of resources at the minimum cost;
- the audited entity manages its resources with a view to minimising overall outlay;
- the intervention could have been designed or implemented in another way which would have resulted in lower costs.
Considerations of economy often lead the auditor to examine processes and management decisions internal to audited entities regarding the procurement of goods, works and services. The auditor will determine in particular whether the procurement process has resulted in the best value being obtained. Areas to be audited will include, for example, the establishment of detailed user requirements to determine what is expected to be achieved through the purchase of goods, works and services, the identification of the quality required in relation to the required outputs and the determination of the desired timing for the delivery of the goods, works and services. The auditor will also often examine the drawing-up and implementation of selection and award criteria.
Resources
Example: Invalidity pension scheme of the European institutions
With some rare exceptions, the files examined did not contain any indication that serious action had been taken beforehand with the aim of finding an alternative solution and suggestions from the medical officer, mainly regarding a change of post, were practically never followed up. An alternative to an invalidity pension was seldom offered, or was offered too late. One quarter of the sample of former members of staff receiving invalidity pensions would probably have been able to continue working if the institution had detected and treated their cases at an early stage. This is confirmed by the replies received in response to the questionnaire: 20 % of the former members of staff thought that they would have been able to continue working had an alternative solution been offered. On that basis, it can be estimated that, in principle, savings of about 10 million euro could be made every year on the net cost of the invalidity pensions granted in the year, by implementing a policy of early detection and treatment of repeated or prolonged periods of absence due to illness.
Examples of audit questions
Auditing performance directly
- Have best prices been obtained for consultancy services for support programmes for SMEs?
- Is there potential for equitably reducing the cost of sickness absences?
Auditing control systems
- Does the Commission management of the cotton production aid scheme include consideration and monitoring of the costs, including those of consumers?
- Are there procedures in place to ensure that the transport costs of food aid are the lowest available and compare favourably with costs incurred by other donors? Are these procedures adequate and being properly applied?
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[link new-window title="GUID%203910%2F7-9" link="https%3a%2f%2fwww.issai.org%2fwp-content%2fuploads%2f2019%2f08%2fGUID-3910-Central-Concepts-for-Performance-Auditing.pdf%23page%3D6" /]
[link new-window title="GUID%203910%2F38" link="https%3a%2f%2fwww.issai.org%2fwp-content%2fuploads%2f2019%2f08%2fGUID-3910-Central-Concepts-for-Performance-Auditing.pdf%23page%3D18" /]
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