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Definitions
The principle of efficiency concerns the best relationship between the resources employed, the activities undertaken and the achievement of objectives.
Risks and issues related to making the most of available resources
Issues of efficiency arise when an entity or intervention could increase the amount or quality of outputs or results without increasing the use of resources. General risks in this area can include:
- leakages, i.e. resources used do not lead to the desired outputs;
- non-optimal input/output ratios (e.g. low labour efficiency ratios);
- slow implementation of the intervention; and
- failure to identify and control externalities, i.e. costs imposed on individuals or entities falling outside the boundary of the intervention or organisation.
Efficiency is closely related to the concept of "productivity" and the key question is whether outputs or results have been maximised in terms of quantity, quality and timing for the level of resources available. The audit will deal with issues such as whether:
- outputs or results have been produced cost-effectively;
- there are any avoidable bottlenecks or unnecessary overlapping.
Comparing resources used to output and/or results achieved
When the audit objective of efficiency considers outputs, it often leads the auditor to examine the processes by which an organisation transforms inputs into outputs. The assessment can involve the calculation of unit cost of outputs produced (e.g. average cost per hour of training) or labour efficiency ratios (e.g. number of subsidy applications processed per day) and their comparison with accepted criteria, which can be derived from similar organisations, previous periods or standards which the audited entity has explicitly adopted.
When the audit objective of efficiency encompasses results, economic tools are generally necessary to assess the ability or potential of an audited entity, operation or programme to achieve certain results at a given cost. As an example, cost-effectiveness analysis can be used to relate the net effects of an intervention to the financial inputs needed to produce those effects; the judgement criteria might, for example, be the cost per unit of result produced (e.g. cost per job created) which is then compared to that of other interventions chosen as benchmarks. Depending on the audit approach, the auditors will either examine the reliability of the analysis performed by the audited body or carry out such analysis themselves.
Resources
Example: Forestry measures within rural development policy
Regarding the objective of increasing woodland areas, there are different kinds of land that might be afforested. The Regulation stipulates that where support is granted for afforestation of agricultural land owned by public authorities, it shall cover only the cost of establishment, i.e. no loss of income compensation or maintenance are to be paid, which is indeed the case for afforestation of private land. Thus, theoretically, focusing this action on public land would be much more efficient as it would, with the same funding, allow for a considerably bigger area to be afforested.
Examples of audit questions
Auditing performance directly
- How does the cost per job created by the EU training programme for the long-term unemployed compare with similar costs per job elsewhere?
- Could the projects have been implemented in a different manner, which would have resulted in improved timeliness and quality?
Auditing control systems
- Are there adequate procedures to prioritise and select transport infrastructure projects to ensure the maximum impact from EU funds? Are the criteria used appropriate and are they being implemented as intended?
- Do the EU institutions have and consistently use adequate key management information about the size, condition, utilisation and cost of their office space for decision-making?
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