Critical Analysis of Value of Money Audit (VFM) and Public Sector
Value for Money (VFM) audit is a systematic assessment conducted by auditors to evaluate whether public sector organizations are obtaining optimal returns from their expenditures. In the context of the public sector, VFM focuses on assessing the economy, efficiency, and effectiveness of resource utilization. Economy pertains to minimizing costs, efficiency involves maximizing output with the given resources, and effectiveness addresses the achievement of intended outcomes. VFM audits play a crucial role in ensuring accountability, transparency, and responsible stewardship of public funds. By scrutinizing financial transactions and performance metrics, VFM audits contribute to enhancing the overall governance and performance of public sector entities, ultimately serving the interests of the taxpayers and the community at large.
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Auditing has existed as long as man has been required to account for
their transactions. A famous example is in St. Mathew’s Gospel (Chapter 25)
when the rich man went on a journey and delivered his goods to a servant to
look after them while he was away. On his return, he asked each of these
servants to account for the goods with which he had been entrusted.
In the ancient ages, great land owners would not manage their own
land, but would appoint stewards to manage their own land for them. The
account of these land owners were checked by having them called out by
those who gave them to those in authority (land owners) for hearing
otherwise called stewardship accounting.
Auditing can be defined as the process of an independent examination
of vouchers, internal control system and financial statements of an
organization by a person or a group of persons called auditors so that the
auditors can form and express opinion whether the vouchers, internal control
system and financial statement, give a true and fair view of the organization.
Auditing is carried in both the public and private sectors. In the case of
public sector, there are two foremost types of audit that are carried out
namely: Regulatory audit and financial audit and the third type is value for
money (VFM) audit which is yet to be fully integrated in most part of the world.
According to Bechberger (2007), it is observed in the past decades that
in order to fight global corruption and strengthening transparency and
accountability in public sector organization across the world, public sector
organizations are now under pressure from the public to integrate value for
money principles in their management practices.
Value for money according to National Audit Office (2007) means
providing a service or a product in a way which is economical efficient and
effective. Value for money audit is therefore, the type of audit that is used to
asses the value for money system in any organization. It is an independent
examination of the criteria (economy, efficiency and effectiveness) for the
value for money to confirm that the organizations available resources are
used wholly, necessarily, reasonably and exclusively so as to maximize
progress towards the chosen objective.
1.2 STATEMENT OF PROBLEM
The research work “The critical analysis of value of money audit (VFM)
and public sector performance in Enugu State centers on the major problems
facing value for money audit in Enugu which includes:-
Problem of inconsistency in public sector objectives as a result of political and economic instability.
Diversity in accounting records or lack of uniformity in accounting
records system among public sector organization.
The problem of cash basis rather than actual basis in public sector accounting.
The problem of insufficient emphasis of accounting and stewardship in
public sector organization.
Inadequate implementation of laws in Nigeria.
1.3 OBJECTIVE OF STUDY
The main objective of the study is to analyze the effects of value for money
audit on public sector organization while the specific objectives are:-
To ascertain the problem of inconsistency in public sector objectives
which is as a result of political and economic instability.
To examine the problem of diversity in accounting system in public
sector organization in Enugu State.
To determine the problem of using cash basis of accounting in public
sector organization.
To ascertain the problem of insufficient emphasis on accountability and
stewardship in public sector organization.
To investigate the problem of inadequate implementation of laws in
public sector organization in Enugu State.
1.4 RESEARCH HYPOTHESIS
In order to achieve the objectives of this research study, the following
hypothesis was formulated.
Hypothesis One
Null Hypothesis (Ho)
There is no significant relationship between economic and political instability
and performance of public sector organization in Enugu State.
Alternative Hypothesis (Hi)
There is a significant relationship between economic and political instability
and performance of public sector organization in Enugu State.
Hypothesis Two
Null Hypothesis (Ho)
There is no significant relationship between cash basis of accounting and
performance of public sector organization in Enugu State.
Alternative Hypothesis (Hi)
There is a significant relationship between cash basis of accounting and
performance of public sector organization in Enugu State.
Hypothesis Three
Null hypothesis (Ho)
Inadequate implementation of law had no effect on performance of public
sector organization in Enugu State.
Alternative hypothesis (Hi)
Inadequate implementation of laws has been effect on performance of public
sector organization in Enugu State.
1.5 RESEARCH QUESTIONS
To what extent does the inconsistency in public sector objectives which
is as a result of political and economic instability affect performance of
public sector organization in Enugu State?
How does the diversity in accounting records or lack of uniformity in
accounting records affect the public sector organization in Enugu State?
Could the problem of the use of cash basis rather than accrual basis
accounting affect public sector organization in Enugu State?
To what extent does the insufficient emphasis on accountability and
stewardship affect public sector organization?
1.6 SIGNIFICANCE OF STUDY
This research therefore aims that value for money audit will be relevant in
the public sector because of the special needs for government organizations
to demonstrate their accountability and their regards for economy, effectively
in the use of public funds and other resources. Value for money auditing is
particularly appropriate for any organization whose activities cannot be
judged solely by their contribution profit.
Budgeting and budgeting control
The development of management information system necessary to
plan, cooperate and control an organization.
Human resources management (that is planning procurement
appraisal) construction procurement and utilization of physical asset
such as property, plant and equipment.
1.7 SCOPE OF STUDY
This work is restricted to Enugu State Water Co-operation; this work
will enlighten them on how to achieve their goals with a minimum cost.
1.8 LIMITATION OF STUDY
The limitations involved in the course of this research includes hostility
and non co-operation on part of executive respondent unwilling to disclose
their necessary and vital information or document which they felt it will be
detrimental to their business. Also the financial implication was very high and
this imposed certain restrictions. The constraint of time was also a limiting
factor as one the areas of interest were not covered as they would have been
adequate.
1.9 DEFINITION OF TERMS
Value for money: Providing a service for a product in way that is economical, efficient and effective.
SHARE PROJECT MATERIALS ON:
Critical Analysis of Value of Money Audit (VFM) and Public Sector:
A Value for Money (VFM) audit in the context of the public sector involves assessing whether public resources have been utilized efficiently, effectively, and economically. The goal is to ensure that taxpayers’ money is spent wisely and that public services deliver the intended outcomes. Here’s a critical analysis of the concept of Value for Money audit in relation to the public sector:
Pros:
- Accountability and Transparency: Value for Money audits enhance transparency and accountability in the public sector. By evaluating how resources are used and whether they provide value, audits help to deter mismanagement, corruption, and wasteful spending.
- Efficient Resource Allocation: Value for Money audits encourage efficient allocation of resources. By identifying areas where resources are being underutilized or misallocated, governments can reallocate funds to more productive and essential areas.
- Improvement of Public Services: The focus on outcomes and effectiveness promotes improvements in public services. When agencies are aware that their performance will be scrutinized, they are more likely to seek innovative solutions and strive for better results.
- Decision-Making: Value for Money audits provide valuable information for decision-making. Policymakers can make informed choices about resource allocation, program continuation, or termination based on the audit findings.
- Stakeholder Confidence: Effective Value for Money audits can bolster public and stakeholder confidence in the government’s ability to manage public funds. This can contribute to a positive perception of government performance.
Cons:
- Complexity of Measurement: Assessing value for money is complex. Determining the appropriate metrics and benchmarks for different programs and services can be challenging. It might be difficult to measure qualitative aspects of outcomes.
- Short-Term Focus: Value for Money audits could unintentionally lead to a short-term focus on cost-cutting rather than long-term sustainability and effectiveness. This might undermine the quality of services provided over time.
- Risk Aversion: Fear of negative audit results might lead public sector organizations to avoid taking risks or innovating. This could stifle creativity and prevent the exploration of new, potentially beneficial approaches.
- Unintended Consequences: In some cases, focusing solely on cost-effectiveness could lead to unintended consequences, such as reducing services to vulnerable populations or neglecting social and environmental impacts.
- Resource Limitations: Conducting thorough Value for Money audits requires resources such as skilled auditors, data collection, and analysis tools. In resource-constrained environments, governments might struggle to allocate adequate resources for such audits.
- Subjectivity: Value for money is not always objective. Different stakeholders might have varying opinions on what constitutes “value” and how it should be measured.
In conclusion, Value for Money audits play a crucial role in promoting transparency, efficiency, and accountability in the public sector. However, they should be approached with caution and a broader perspective. Balancing cost-effectiveness with the quality and long-term impact of public services is essential to ensure that Value for Money audits lead to positive outcomes for citizens and society as a whole.