In our everyday interactions, we usually say that our resources are limited and concerned about how we use them to satisfy our needs. People try to ensure that they don’t pay for any good or service more than its quality. Expressions like “things sold at a good price” or “where quality meets the price” are synonymous with value for money (VfM). Value for money(VfM) is of the essence in many enterprises. It is used to assess if an organisation has been economical, efficient and effective with its resources to obtain goods and services. Those resource be could be financial or non-financial inputs or supplies. Indeed, the terms economy, efficiency and effectiveness have been used; what do they actually mean?
Pillars of Value for Money (VfM)
–Economy- This can also be described as cost minimisation. It is the careful use of resources to save cost, time or effort. This is to ensure that the required resources for the project or goods and services have the desired qualities or specifications and obtained at a good price on the market. In the public sector, one of the ways to give practical effect to this principle is to abide by the enabling legislation on public procurement in its spirit and letter.
–Efficiency can also be termed as output maximisation. It is providing the same level of service with optimal cost, time or effort. Efficiency is achieved by the optimal use of available resources to achieve desired purpose (output).
Effectiveness means the full attainment of the intended purpose. It involves the delivery of a better service or getting a better return on investment in terms of same amount of expense, time or effort. It is a measure of the extent to which the organisation’s outputs achieve its stated objectives.
Equity-This principle is also used in the value for money(VfM) discourse. When applied to resource mobilisation and through the implementation stages of a project, value for money not only optimises costs, but also ensures greater transparency and the inclusion of all stakeholders involved in the activity, hence, equity is achieved.
To determine if an organisation has obtained good value for money(VfM) in respect of the procurement of any goods or services, you need to consider them by looking at the mix of quality, cost and resource use, fitness for purpose, timeliness and convenience. That said, one of the surest ways to promote transparency in these issues is to conduct value for money (VfM) audit.
Value for Money (VfM) Audit
Simply put, value for money (VfM) audit is a procedure which requires an independent assessment of an activity or project to determine if the resources for it, is being used or has been used in an economic, efficient and effective way. The emphasis is on the “independent assessment” to mean that the audit engagement should be done by a third-party mainly an auditor with the fairness of mind. In value for money (VfM) audit exercises, you need to examine the use of resources against the intended purpose behind the project.
The public sector and the non-governmental organisations(NGOs) are usually the ones which usually require value for money (VfM) audits. But to ensure good corporate governance, the private sector is also employing value for money (VfM) audits for shareholders to assess managers of the company regarding the use of their funds. To obtain quality of work from value for money (VfM) audits, you need to value the project in three phases namely preparation (before the project starts), implementation (during the project) and evaluation (after completing the project) while forecasting external events which could have direct impact on the project from the onset to the completion.
Preparation Stage
At this stage, value for money exercise helps to plan with some degree of certainty the amount of resources which should be mobilised or budgeted for the procurement of goods and services. Also, you consider the sources of resources with some assurance of availability. You plan to fail if you fail to plan at this stage. Indeed, a good plan helps to make reasonable estimates of the costs of resources and the expected benefits. In situations where organisations rely on donor/external sources of funding for projects, value for money helps to make presentation which has more chances of obtaining funds for its implementation.
Implementation Stage
Value for money(VfM) also needs to be conducted as part of monitoring the deliverables to ensure performance is according to plans and expectations. This is the stage where unexpected events can have impact on projects and escalate costs. Proper planning helps to make use of sufficient resources to contain such events, thereby obtaining good value for money. Monitoring in this respect helps to identify any deviations in the performance or execution of projects and correcting them timely through efficient use of resources.
Evaluation Stage
Value for money is also necessary on the completion stage. This helps to tick the boxes with regard to the objectives set out at the beginning of a project. In this case, you measure the totality of the key pillars-economy, efficiency, effectiveness and equity to conclude if there has been good value for money(VfM). This stage has been described severally as cost-effectiveness analysis, cost-utility analysis, cost-benefit analysis, cost-impact correlation, social return on investment and baseline analysis of resource efficiency. The World Bank, for instances, uses cost-benefit analysis for the preparation and management of its development programmes and projects. On the other hand, some donor agencies such as the USAID (United States Agency for International Development and CIDA (Canadian International Development Agency) use results-based management method to answer certain critical questions relating to value for money.
In effect, value for money(VfM) audit involves reviewing an organisation’s operations to identify gaps, deviations or weaknesses relating to the use of resources along the following lines:
- Auditing the Economy of Operations
This calls for an in-depth assessment of transactions and aims at cost control or minimising cost in the process of executing a project or obtaining goods and services. You inspect transactions alongside the activities to confirm if resources have been used judiciously or misapplied(wasted).
- Auditing Efficiency of Operation
The intention here is to establish if the best result has been achieved with the amount of resources allocated. You verify to confirm the efficiency of operations by matching the level of service provided and the resources used to achieve that level. To achieve this, it means that resources need to be properly planned for, organised, utilised and controlled.
- Auditing Effectiveness of Operation
In this case, you verify the extent to which targets or scope of activities have actually been achieved. It is a matter verifying if the resources have actually fulfilled the objectives or meeting the people’s expectations by way of the benefits outlined from the onset.
Aide-Memoire
In conducting value for money audit, you must have a checklist to guide you solicit relevant responses. Even though not exhaustive, some of the relevant questions are:
- Are there any alternative means which can minimise cost?
- Is there unnecessary duplication of efforts, process or procedures?
- Have the outputs/deliverables met the set targets?
- Can results be improved without incurring additional cost?
- Is the cost incurred justified and matching with the results?
- Are the results achieved in line with overall objectives?
- Are there any unnecessary equipment and materials?
- Is there adequate safeguard for assets?
The culture of value for money (VfM) needs to be embedded in all facets of development and people must be trained where there is gap in knowledge. I am of the firm conviction that, value for money exercises without any form of ill-will with the people can ensure prudent use of public resources and promote good governance.
BERNARD BEMPONG
Bernard is a Chartered Accountant with over 14 years of professional and industry experience in Financial Services Sector and Management Consultancy. He is the Managing Partner of J.S Morlu (Ghana) an international consulting firm providing Accounting, Tax, Auditing, IT Solutions and Business Advisory Services to both private businesses and government.
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