Performance Audit

(c) Performance Audit

Definition. Performance Audit examines whether an organisation's programmes, schemes, or activities have actually achieved their intended objectives economically, efficiently, and effectively — commonly summarised as the "three Es". It is the branch of auditing most closely associated, in the Indian context, with the audit of government programmes and public-sector undertakings by the Comptroller and Auditor General of India (CAG), though the same idea applies equally to a large private organisation's own internal programmes.

Objectives:

• Economy — were the resources (money, manpower, materials) for the programme acquired at a reasonable cost, without unnecessary extravagance?
• Efficiency — was the relationship between the inputs used and the outputs produced optimal, or could the same output have been achieved with fewer resources?
• Effectiveness — did the programme actually achieve its intended objectives and real-world outcomes, and not merely spend its allotted budget?
• To identify specific areas of wastage, delay, or underperformance.
• To provide constructive, evidence-based recommendations for improving future planning and implementation.

Advantages:

1. Goes well beyond mere financial correctness ("was the money accounted for?") to measure genuine value for money ("did the money actually achieve something?").
2. Strengthens accountability for public funds and large private programmes/schemes alike.
3. Provides constructive, forward-looking feedback for redesigning future policies or programmes.
4. Especially useful for evaluating government welfare schemes and corporate CSR programmes against their stated goals.

Limitations:

1. "Effectiveness" — whether real-world social or developmental outcomes were achieved — is often genuinely difficult to measure objectively, especially for programmes with a long gestation period.
2. Requires auditors with subject-matter expertise well beyond accounting (e.g. public health, engineering, agriculture, depending on the programme).
3. Can be time- and resource-intensive, given the scale of many of the programmes examined. …