Video: A beginner's guide to auditing

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Transcript of this video

In our last video, we talked about how rates and taxes are spent by Parliament, local councils, and public organisations. The Auditor-General keeps an eye on that money so she can tell Parliament and the public of New Zealand that this money is being spent properly. The Auditor-General is the public watchdog.

"Excuse me, how exactly does the Auditor General know if the money is being spent properly?" I’m glad you asked Susan, I’m glad you asked.

Auditors are responsible for a large part of the Auditor-General’s work and are her eyes and ears

This story is a closer look at how the Auditor-General is able to tell parliament and the public that money is being spent properly. This is a big job and there are far too many organisations and people to talk to for the Auditor-General to be able to do all of it by herself. If one person tried to do it by themselves, they would probably get very cranky, very quickly. That’s why the Auditor-General employs hundreds of people to do this work for her. These people are called auditors.

Auditors are responsible for a large part of the Auditor-General’s work and are essentially her eyes and ears. They mostly work on two types of audits - financial and performance audits. Both types of audits are important but focus on different things.

Financial audits focus on, you guessed it, the money. Performance audits focus on whether or not an organisation is doing their job the best way they can.

For both types of audits, auditors need to work out what important information needs to be looked at. To do this, auditors talk with the organisation before they start the audit so that everyone knows what information is going to be looked at and can agree to an audit plan. This way auditors and organisations work together to get the job done. Financial and performance audits are a little different from each other in practice.

Financial audits

Financial audits happen every year and are all about "where the money at". To work this out, auditors look at annual reports and financial statements that show what the organisation has been doing for the past year, how they have spent the money they have received and what they have done to try and improve their services from last year.

auditors and organisations work together to get the job done

Auditors look at these annual reports and financial statements to make sure that what they have said is correct by double-checking the facts and figures. If it’s correct the auditors shout "Huzzah", and move onto the next financial audit.

If it is not correct, it could just mean that a simple mistake was made and needs to be fixed. However, it could be that someone has been a little naughty with the facts or the money. This is called fraud and auditors and the Auditor-General does not like fraud one little bit. The Auditor-General and her staff would then do everything in their power to find where the mistake happened, who caused it, and how to make sure it never happens again.

Performance audits

Performance audits are a little different than financial audits. They are looking at whether an organisation is doing the best job it can. Organisations won’t have a performance audit happen every year like they will with financial audits. A performance audit might look at a special aspect of an organisation's work to see if any improvements can be made.

performance auditors can see how well an organisation is working and what can be done to improve the way it works

For example, if the army spends all its money on banana-plated tanks, a performance audit might look at whether or not buying armour-plated tanks is a better idea. It is, for the record.

Performance audits involve talking to a lot of people who work for the organisation because it is these people who have the best view of how the business is being run. From these interviews and information from important documents, like annual reports and other publications, performance auditors can see how well an organisation is working and what can be done to improve the way it works.

Performance auditors then go away, evaluate the evidence and the information, and come to an audit opinion about the performance of the organisation.

Once all the audit work is done, financial and performance auditors share what they have found with the organisations that they have audited so that they can talk about any improvements to be made or any problems that were found. The Auditor-General is told if there are any issues that she needs to be aware of and keeps involved with the work of her auditors to support them and stay informed to make sure that nothing is missed.

The Auditor-General is then able to use her auditors work and findings to provide assurance to Parliament and the public of New Zealand that public organisations are running the best way they can.

September 2012