External auditors and clients: an investigation ofperceptions of value for money (VfM) audit practices inthe UK public sector

Abstract

The aim of this Thesis is to to provide empirical explanations for the perceptions of external auditors and clients (professionals and Operational Managers in the UK Public Sector organisations), in regard to the Value for Money (VfM) audit’s ability to improve performance in the UK Public Sector organisations. The main source of the data was face-to-face semi-structured interviews with auditors from the National Audit Office, The Audit Commission and other accounting firms from the UK Private Sector. Senior professionals and Operational Managers from the National Health Service, Local Government Authorities, the Police Service and Housing Associations were also interviewed. The evidence is organised with the following aims; (1) to investigate the audit expectations and perception gaps between the external VfM auditors and their clients, i.e. professionals and Operational Managers in the UK Public Sector organisations, while identifying the nature of potential role conflicts in the VfM audit environment along with the causes and consequences of such potential conflicts; (2) to examine, both from the auditor and client perspectives, the impact of the VfM audit on the audited bodies’ performance and to determine whether the VfM audit has effected any changes in the way these organisations manage public resources, and (3), to examine, from the external VfM auditors’ and clients’ perspectives, the impact of the VfM audit on the UK Public Sector audited bodies, while investigating the ways in which the interplay of personal, interpersonal and external factors can enhance or hinder its effective performance. The results show that, among other tools, the VfM audit has been perceived as an important means with which to improve institutional performances in the Public Sector, but the VfM audit has not yet been internalised in the audited bodies as previously assumed. The results indicate the existence of clear audit expectationss and perception gaps within the VfM audit environment. Clients expect the external VfM auditors, firstly, to identify areas where their performance needs to be improved and then to suggest solutions in order to remedy the problems and improve performance in the audited bodies. According to official documentary evidence, these expectationss have been regarded as unreasonable, with the assumption being that the auditors should not be involved in working with the audited bodies to find out solutions to remedy problems, as this might impair their independence. The findings of this study also show that, while the majority of the auditors interviewed took an extremely positive view of their own achievements in terms of improving public institutions’ performances and delivering VfM services, the majority of the clients, and some of the auditors interviewed, were not convinced of the external auditors’ competence to carry out a VfM audit effectively, and to provide their clients with value added recommendations. The major concern seems to be in regard to the auditors’ relevant experience and knowledge of the audited body’s activities, the materiality of their findings and the truth and fairness of their reports. In addition, the results show that audit expectationss and perception gaps between the external VfM auditors and their clients give rise to significant role conflicts. Three types of role conflicts have been identified; (a) conflict between the external VfM auditors’ roles and their own professional values and standards (person-role conflict); (b) conflict between the external VfM auditors’ actual capabilities and their role requirements (role overload), and (c) conflict between the external VfM auditors and their clients (intersender conflict). Moreover, this study has revealed that social factors at the personal (the VfM auditors’ competence based on their relevant skills, experience and knowledge of the Public bodies’ activities), interpersonal (task interdependence between the external VfM auditors and the clients) and external levels (the ambiguity of the VfM audit process), all have negative effects on the influence of the external VfM auditors over the audited bodies, hindering the effective performance of the VfM audit. Finally, the findings reported in this study suggest that there is a necessity for more studies to examine both the VfM audit’s effective performance and impact on the audited bodies, especially in view of the constant change which characterises both Public Sector organisations, as well as the remits of the VfM audit as a tool to improve performance.

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