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Valahian Journal of Economic Studies

Volume 6 (20) Issue 3 2015

New Perspectives in Evaluating Internal Audit Performance


Liliana MANEA
Cristian TEIUANU

Valahia University of Targoviste, Romania

lilyanamanea@yahoo.com
Abstract
Defining performance indicators for all internal audit activities is a complex
process to highlight the quality of this set of activities. Quality however is not a
performance indicator or an additional property added to it, but it belongs intrinsically to
the set as a result of the basic solution components properties. This article aims to add to
the literature a new set of quantitative and qualitative indicators and also an aggregate
indicator characterizing the degree of performance and the practical utility of such
analytical tools will be the subject of future research.
Keywords: performance, qualitative indicators, quantitative indicators,
internal audit
JEL Classification: M410
Introduction
Evaluating the structure of public internal audit would be recommended to be
approached from at least three perspectives:
the management or authorising officer;
the internal audit structure ensuring the conduct of public internal audit
targeting both the value, cost and quality;
the final beneficiary, namely the citizen, who will consider in the first place
the quality of services provided by the public institution.
The optimal allocation of all categories of resources (human, technical, financial)
based on both the needs of the internal audit structure and the possibilities of the public
institution at a certain time, requires quantifying the quality of the internal audit activity at
control system level, both by qualitative and quantitative analysis indicators.
The system of indicators may vary from one type of organizational structure to
another but always defines the relationship between entering resources (inputs) and what
the organizational structure of public internal audit performs by using these resources
(outputs).
In the category of qualitative analysis indicators we enumerate:
the satisfaction level of the final user or the degree of assurance given to
citizens,
the acceptance of the results by the Head of the public institution,
the degree of achievement of planned objectives,

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the speed reaction of the users from the moment of the provision of
information audit,
the effectiveness of the internal audit activity and of internal audit structure,
the accuracy of audit information.
Figure no. 1.
Perspectives in evaluating public internal audit
Internal audit
structure

Citizens

Perspectives in evaluating public internal audit

Management of the
public entity

(Source: proposed by the authors)

In the category of quantitative analysis indicators we enumerate:


the level of actual costs to achieve planned objectives (cost of an audit
intervention, cost of an assurance mission, cost of an advisory mission, the annual cost of
internal audit),
productivity of an auditor.
In fact the system of indicators used to date in assessing public internal audit in
Romania has a primitive character. For instance here are calculated indicators of
quantitative analysis such as: number of audits completed in a certain time, productivity
(monthly, half-yearly or annual) of each auditor, productivity (monthly, half-yearly or
annual) of the audit service. These indicators find use only in the annual evaluation of
auditors and do not necessarily determine the obligation of adopting measures to improve
the internal audit activity. In what follows we propose that the indicators system for
evaluating internal audit activities to be divided into operational indicators and impact
indicators.
Proposed definitions:
1.
An operational indicator expresses, in measurable units, the efforts and
achieved effects throughout the evaluation process (from planning to formulate
recommendations).

2. An impact indicator expresses, in a certain measure, the effects resulting


from the completion of the evaluation process (after sending the assessment report).
The category of operational indicators includes:
1) output productivity indicators
the number of audits carried out by the internal audit structure (at a time or in a
certain period of time)
the number of audits undertaken by each auditor (at a time or in a certain
period of time)
the amount of damage identified by the internal audit structure (monthly,
quarterly, half-yearly, annually)
the amount of damage identified by each auditor (monthly, quarterly, halfyearly, annually).
Currently this type of quantitative analysis indicators are used both by
management structures for analyzing the audit activity and within audits carried out by the
Court of Accounts.
Proposal of output productivity indicators
Indicators expressed in absolute numbers
number of recommendations carried out by the Head of the institution
(quarterly, half-yearly, annually),
number of recommendations not carried out by the Head of the institution
(quarterly, half-yearly, annually),
number of objectives met by the public institution audited (at a time or in a
certain period of time),
amount of damages recovered (at a time or in a certain period of time).
Indicators expressed in relative numbers
share of unimplemented audit recommendations related to audit recommendations
implemented by the Head of the public institution (quarterly, half- yearly, annually),
share of implemented audit recommendations related to the total audit
recommendations (quarterly, half-yearly, annually),
share of audit recommendations not implemented by the Head of the public
institution related to the total audit recommendations (quarterly, half-yearly, annually),
share of damage recovered in the total of damages identified (quarterly, halfyearly, annually).
These indicators may be used in methods of qualitative analysis of the internal
audit structure being suited for certain comparative analysis of benchmarking type and for
certain before and after analyzes type.
2) Output cost indicators
cost of developing a public internal audit,
cost of implementation of a recommendation,
cost of recovery of a damage.
Proposal of indicators of quality level cost of the public internal audit activity:
implementation cost of a unit of information provided (a recommendation)
related to the average waiting time to implementation,
the cost of developing a recommendation related to the promptly level of the
management of the institution to achieve the recommendation (expressed in units of time),
the cost of internal audit related to the quality level of of internal audit
activity.

Proposing a cumulative system of indicators in the category of economic


efficiency indicators for expenditures made to ensure the level of satisfaction of
beneficiaries of the public internal audit activity that involves the cumulated, correlative
analysis of the following indicators:
the amount of financial resources used to develop internal audits with satisfaction
level assured,
the average number of personnel employed in making audits for a certain period
of time,
the amount of financial resources used for auditors continuing professional
training,
personnel expenses related to the total financial resources allocated to an audit
activity,
the amount of financial resources allocated for the functioning of audit
structure within a certain period of time.
This system of indicators would determine in an analytic form:
the cost of an internal audit activity,
the cost of continuing training for internal auditors,
the cost of an unimplemented recommendation,
the cost of an implemented recommendation,
the utilization of available time,
new equipment purchase costs (hard and software) relative to the examined
costs of assets such as fixed assets relative to the examined time.
time,
The category of effectiveness indicators includes:
1) circulating indicators:
degree of coverage within the auditing the audit activities carried out by the
public institution,
number of recommendations made by internal auditors,
speed of meeting and/or implementing recommendations,
amount of damage identified and recovered.
Depending on the type of audit (absolute and relative) we have:
the number of system audit in all audits activities completed within a certain
time, the number of performance audit in all audits activities completed in a certain
time.

Currently this type of quantitative indicators, calculated in relative and absolute

values, are used both by management structures for analyzing the audit activity and within
auditing activities carried out by the Court of Accounts.
Proposals of effectiveness indicators:
1) indicators of satisfaction of the users of information audit
citizen satisfaction degree in relation to the quality of services provided by the
audited public institution,
the satisfaction of the head of the public institution related to the quality of the
auditing information requested,
the average waiting time to implement audit recommendations,
the proportion of implemented recommendations in relation to
recommendations unimplemented by the public institution management .
2) indicators of use related to the availability

the average usage/implementation of the recommendations related to


recommendation quality,
the average promptness provided by users in using recommendations,
expressed in units of time,
the average usage/implementation of the recommendations related to average
promptness, expressed in units of time,
the availability provided by the internal auditors in advisory work expressed in
units of time or number of advisory activities related to a specific period of time
(monthly, quarterly, annually).
Proposals regarding the category of impact indicators:
1) indicators for the fulfilment of objectives
achievement of the purpose of creating audited public institution,
fulfilment of the objectives planned in the internal audit activity,
the progress of the scheduled auditing,
the degree of resources used in the level of resources allocated from the
budget. 2) indicators of the users of information audit
achievement of objectives by the management of the public institution,
achievement of the objectives by internal auditors through the auditing plan,
coverage of audited area by the audits completed in a period of time,
amount of damages recovered as a result of implementation monitoring,
amount of damages recovered following the external coverage of audit
information.
Defining a set of indicators for the assessment of the public internal audit activity
represents the first step in quantifying the activity at the control system level but also at the
socio-economic system level of the internal audit structure. Given that any activity system
is characterized by all the functions, features and useful properties thereof which helps
meet social needs we can say that all properties functions which highlight the
characteristics of activities to perform the functions for which are designed represent the
set of evaluating indicators defined above.
Within evaluating indicators set an important role is held by the performance
indicators of the entity that could include indicators proposed above namely those in the
impact indicators category. In addition, defining the set of performance indicators should
be consistent with the adoption of a global quality indicator of business control system and
particularly the structure of internal audit. Thus it can allow the determination of objective
criteria for assessing the efficiency and effectiveness of internal audit structures and may
lead to quantify these activities and eliminating subjectivity in assessment.
This global quality indicator we propose to be called "quality degree of the
objectives fulfilled" that depends on the one hand on the degree of achievement of
predetermined goals and secondly on the quality of their implementation. Proposed
indicator is in fact the result of a combination of indicators and aims at quantifying internal
audit contribution to maintaining and enhancing the prestige of a public entity, its image
before the society and to meet the purpose for which it was created.
The quality degree of an objective met can be defined, therefore, through a
combination of operational and impact indicators specific to the activity of each public
entity. This global indicator provides a usage value for the internal audit activity and
expresses in a global manner the quality both scientifically and economically.

Conclusion
The evaluation of the conduct of internal audit activities within an entity can be
made for example through the combined use of indicators of quantitative analysis with
qualitative analysis indicators. In this way quality means competitiveness and efficiency
for both the auditor and the beneficiary/user (management team or citizens) and can
express the degree of quality in meeting the objectives of internal audit activities or the
degree of quality of the objectives achieved by the public entity. Analyzed as a synthetic
indicator it means both determining the competitiveness of the system characterized by
these activities compared with similar systems and the efficiency of such activity in the
control system analyzed. In these circumstances it results that based on the indicators of
quantitative and qualitative analysis can be defined a synthetic and quality cumulative
indicator or an indicator of evaluating the performance of economic and social system
activities represented by the public entity concerned as a whole but also by the internal
audit structure in this case.
References
Ghi M., Popescu M., (2006) Auditul intern al instituiilor publice [Internal audit of public
institutions], CECCAR Pub. House, Bucarest
Renard J., Teoria i practica auditului intern [Theory and practice of internal audit], (2002)
4th edition, European Union, project financed by Phare and Ministry of Public
Finnance,

www.auditnet.org

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