Can you explain the term value for money audit?

According to Power (1997) ‘Value for Money’ (VfM) audit claims to evaluate performance according to three sorts of criteria that he calls ‘The Three E’s’; namely:

Economy – the acquisition of resources on the best possible terms.

Efficiency – the use of resources to achieve a given level of output.

Effectiveness – the match between intentions and outcomes.

He claims that the efficiency and effectiveness components are at tension in VFM Audit because they stem from different logics of Evaluation. Efficiency stems from the disciplines of Accountancy and Business Studies. Within this logic outcomes get defined as intended outputs or ‘measures of the measurable’. Effectiveness on the other hand stems from the Social Sciences, and refers to both the intended and unintended effects of activities conducted in complex multi-dimensional contexts, many of which are not susceptible to precise quantification. Power argues that while VfM Audit claims to judge effectiveness, it tends to emphasise economy/efficiency.

As a mechanism of accountability for public service professionals, Power believes that VfM should be viewed in a policy context that aspires to replace ‘inefficient’ bureaucratic management of the public sector with ideas borrowed from the private sector under the label of the ‘New Public Management’ (NPM). The key ideas of the NPM are ‘decentralisation’ and ‘organisational autonomy’ and its latent function is to facilitate indirect, rather than direct regulatory control over performance. In addition, I would contend that in this context ‘power’ is divorced from ‘responsibility’ and ‘accountability’ gets interpreted as a mechanism for securing regulatory compliance.

Power also points out that VfM can shape up as a form of self-audit, as well as external audit. This has implications for what is currently happening in the United Kingdom educational system. We are witnessing a transition from ‘heavy touch’ external inspection systems to ‘light touch’ inspections of internal audit procedures. Within the new policy context the ideal organisation manages its own compliance through self-audit.

From the policy-maker’s perspective, VfM Audit is itself a cost-effective means of ‘driving up standards’ in our public services. Yet I would argue that we now have increasing evidence of its counter-productive side effects. VfM may shape performance in ways that raise ‘standards’, as these are defined by specifications of measurable output, but in doing so it brings into effect outcomes that threaten to undermine the actual quality of public service delivery. If this is so, then it bears out Power’s thesis that VfM confuses effectiveness with efficiency.

Independent audit of a not-for-profit organization (government agency or unit, charity, trust, etc.) to assess the effectiveness and efficiency of its utilization of funds. It is employed where the standard commercial performance (profit oriented) measures cannot be used. Also called value for money analysis.

A value for money (VFM) audit is a systematic, purposeful, organized and objective examination of government activities. It provides Parliament with an assessment on the performance of these activities; with information, observations and recommendations designed to promote answerable, honest and productive government; and encourages accountability and best practices.

In Simple words, A VFM Audit or value audit is designed to check proper arrangements which have been made to secure economy, efficiency and effectiveness in the use of resources for desired quality.[1]

An independent evidence-based investigation which examines and reports on whether economy, effectiveness and efficiency has been achieved in the use of public funds.

VFM auditing, also called management auditing, examines the ability of government organizations to discharge their responsibilities and control their costs by ensuring that resources are managed at the lowest cost and that activities are organized efficiently. It also deals with accountability in these areas.

Its scope includes the examination of economy, efficiency, cost- effectiveness and environmental effects of government activities; procedures to measure effectiveness; accountability relationships; protection of public assets; and compliance with authorities. The subject of the audit can be a government entity or activity (business line), a sectoral activity, or a government-wide functional area.

Economy: refers to the terms and conditions under which the public sector organizations acquire both human and material resources.

Efficiency: this is the extent to which a program achieves goals or other intended effects.

Effectiveness: this relates to how well a program or activity is achieving its established goals or intended effects.

The primary objectives of value for money (VFM) audit are to provide the Assembly with independent information and advice about how economically, efficiently and effectively departments, agencies and other central government public bodies have used their resources, encourage audited bodies to improve their performance in achieving value for money and implementing policy, and identify good practice and suggest ways in which public services could be improved.

Phases of value-for-money audit are:

Proposal phase: aims at justifying the study of a particular area, authorize initial resources and determine further considered initial analysis of financial statistics, audit costs and other performance indicators.

The Scooping phase: aims at gathering sufficient details. It embraces gathering working information, studying related legislations and testing controls act. At this stage there will be comprehensive management systems and objective review.

Planning phase: Aims at planning to fully develop identified potentials. The planning and control processes are properly analyzed and methods of reviewing operating results are examined through analysis of control and reporting systems.

Implementation phase: Aims at reporting the audit results to those responsible for receiving or acting on them.

Evaluation phase: is to evaluate the audit result, methodology and performance of the audit staff. The focus here will be assessment of efficiency and effectiveness review. Value-for-money audit aims to identify ineffectiveness in the system and under-utilization of resources.

Value for money VFM means best use of available resources a right balance between quality and cost and also a 

VFM is bout achieving a right balance between economy efficiency and effectiveness the 3E's-spending less spending well and speniding wisely.

Economy- best quantity and quality at minimum cost

Efficiency-Input Vs outpus achieving Maximum output with minimun intput for any quantity quality and services.

Effectiveness- The extenet to which result is achieved either quantitative or qualitative with the use of input (economy) and output (efficiency)

This means that Value for Money not only measures the cost of goods and services but also takes account of the mix of cost with quality, resource use, and fitness for purpose and timeliness to judge whether or not, together, they constitute good value.

Value for Money is not about cuts. It can be achieved in different ways including:

1. reducing costs (e.g., labour costs, better procurement and commissioning) for the same outputs ,
2. reducing inputs (e.g., people, assets, energy, materials) for the same outputs,
3. getting greater outputs with improved quality (e.g., extra service or productivity) for the same inputs,
4. getting proportionally more outputs or improved quality in return for an increase in resources.

Value for money is a term used in different ways, including as a synonym for cost-effectiveness, and as systematic approach to considering these issues throughout planning and implementation, not only in evaluation.