Value for money is an audit examination designed to determine whether the organization in question is performing economically, efficiently, and effectively in its use of resources, operating procedures, and in pursuit of objectives.
In the private sector, the economy, effectiveness, and efficiency of their services or products are reflected in the Balance Sheet and in Profit and Loss Account.
Economy, Efficiency & Effectiveness
Economy – The economy is minimizing the cost of resources acquired or used in an activity having regard to the appropriate quality. (i.e. spending less).
Efficiency – Efficiency is the relationship between the output, in terms of goods, services, or other results used to produce them. (i.e. spending well).
Effectiveness – Effectiveness is the extent to which objectives are achieved and the relationship between the intended impact and the actual impact of an activity. (i.e. spending wisely).
The economy of procurement is achieved by procuring required items in the right quantity, delivered to the right place at the right time and at right cost.
What is Value For Money audit?
Value for money audit is an examination that provides an objective and constructive assessment of the financial, human, and physical resources that are managed with due regard to economy, efficiency, and effectiveness, and accountability relationships are served.
Difference between financial and VFM audit
Focus on the attest function.
Are almost always limited to financial matters.
Are nearly always performed in the same manner using universally recognized standard auditing techniques.
Result in reports limited to disclosures and opinions with financially related matters.
Generally deals with economy, efficiency, and effectiveness (not necessarily all three at once).
Focus attention on the task, activity, function, or area of organized activity.
Performed using audit techniques and other procedures tailored to the activity being reviewed.
Reports always include recommendations for improved performance.
How useful VFM audit is
VFM audit takes a macro view of things. It concentrates on systems and procedures and not on individual transactions.
VFM audit helps to generate appropriate information on management accountability. It provides a mechanism for the legislature to assess the value for money.
VFM audit helps the management in improving effectiveness in the future. It highlights the areas that need action. It guides management towards better performance.
VFM audit avoids the audit of policies. It does not question the rationale of executive policies. However, it does tell where these policies have not been able to attain the intended results.
Procurement in supplies should ensure
- Right Quantity
- Right Quality
- Right time
- Right Price
Procurements in construction should ensure
- Minimum cost
- Maximum Economic advantage
- Required Standard
- Successful completion