United States General Accounting Office

GAO Office of Policy

August 1993

An Audit QualityControl System:Essential Elements

GAO/OP-4.1.6

Preface

Government audits, evaluations, and investigationsassess the efficiency, effectiveness, andaccountability of government agencies and theirprograms. These assignments provide information,unbiased analysis, and recommendations that theorganization’s customers and stakeholders use tomake informed decisions.

This guide is intended to reinforce the GovernmentAuditing Standards on quality control; to providehelpful hints for use by federal, state, and local auditorganizations in designing or improving their systems;and to ensure consistent quality products that can berelied on by the organizations’ customers andstakeholders.

This guide describes the approaches presently beingused by GAO. While the General Policies/ProceduresManual and the Communications Manual provideguidance on the various facets of doing our work, thisguide pulls together in one place the essentialelements of GAO’s quality control system.

Today’s total quality management environment offersexcellent opportunities to reassess and continue toimprove the quality control system that helps toprovide customers and stakeholders the service towhich they are entitled.

Key questions that should be considered in assessingan audit organization’s quality control systemseffectiveness include the following. Are we:

• Doing the right jobs?• Doing the jobs right?• Getting results?• Achieving consistent quality?

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These questions are pertinent regardless of the auditorganization’s role, mission, size, or constituency. Agood system should also provide the auditorganization with performance indicators andfeedback from its customers, attesting to theconsistency of quality work.

Werner GrosshansAssistant Comptroller General for Policy

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Contents

Preface 1

Chapter 1 Overview

6The Need for an Appropriate Quality System 6The Importance of Audit Quality 6Involvement of Top Management 7Communicating System Guidance 8Purpose of This Guide 8Key Questions 9

Chapter 2 Doing the RightJob

12Purpose 12What Are the Right Jobs? 12Key Factors in Planning 12The GAO Example 18

Chapter 3 Doing the RightJob

20Purpose 20Job Design 20Job Staffing 24Effective Implementation 24Product Preparation 27

Chapter 4 Getting Results

31Purpose 31High-Quality Recommendations 31Commitment 32Monitoring and Followup Systems 32Special Attention to Key Recommendations 33

Chapter 5 DemonstratingConsistentQuality

35Purpose 35Internal Quality Reviews 35Peer Review 38

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Appendixes Appendix I: Listing of GAO’s TechnicalGuidance Publications (Gray Books)

40

Appendix II: Doing the Right Job—The GAOExample

44

Figure Figure 1.1 10

Abbreviations

AICPA American Institute of Certified PublicAccountants

CM Communications ManualGPPM General Policies/Procedures ManualIIA Institute of Internal AuditorsNALGA National Association of Local

Government AuditorsNSAA National State Auditors AssociationOIGs Offices of the Inspector GeneralPCIE President’s Council on Integrity and

Efficiency

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The Need for anAppropriateQuality System

Government Auditing Standards require eachorganization to have an appropriate quality system inplace. The quality assurance system should providereasonable assurance that the organization (1) isfollowing applicable Government Auditing Standardsand (2) has established and is following appropriatepolicies and procedures.

The Government Auditing Standards quality controlstandard, the fourth general standard, states:

“Audit organizations conducting government audits should have anappropriate quality control system in place and participate in anexternal quality control review program.”

The Importanceof Audit1 Quality

A high-quality job greatly increases the probabilitythat audit results will be relied on and recommendedimprovements will be seriously considered andimplemented. The organization’s reputation forconsistent high-quality work helps ensure thatdecisionmakers will more readily and more assuredlyaccept findings and implement recommendations.

Reputations are built over time by producingconsistent, high-quality work. A hard-earnedreputation is on the line with each product.

To maintain and continue to build excellence requirestotal commitment on the part of every member of theteam and the organization.

Challenges to findings and recommendations can beexpected. As an organization increasingly deals withtougher and more sensitive issues, challenges to itswork increase.

1This guide uses the word “audit” to include audits, evaluations,inspections, and investigations. It uses the words “auditor” or“staff” to include the range of skills and disciplines employed insuch work.

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It is not unusual for various constituencies to believethat they would be better off if results could bedisproved or called into serious question. Asuccessful challenge demonstrating minor errors orinconsistencies may call into question the quality ofwork supporting the principal finding orrecommendation.

Regardless of the reason for the challenge, it can besuccessfully refuted by demonstrating that findings,conclusions, and recommendations are warrantedand supported.

An effective quality control system is the basis forensuring that the results will meet customers’ needstime after time and withstand challenges directed atthem.

Involvement ofTop Management

The quality control system should be rooted in topmanagement’s expectation of and insistence onquality and the principles, policies, and procedures bywhich it can be achieved and will be evaluated.

For example, the following establishes basic goalsand expectations that are a sound basis for GAO’squality planning and performance:

“We seek to achieve honest, efficient management and fullaccountability in government programs and operations. We servethe public interest by providing policymakers with accurateinformation, unbiased analysis, and objective recommendations onhow best to use public resources in support of the security andwell-being of the American people.

“Commitment to quality is the single most important principlegoverning our work.”

The Comptroller General and other top GAOmanagers participate in the early direction of work to

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be done and in major decisions at key points inassignment planning and performance.

CommunicatingSystem Guidance

The quality control system should define principles,policies, and procedures that will achieve theconsistent quality of work that the organizationexpects.

System guidance should establish what is expected ateach phase of an assignment, leaving room forinitiative and creativity on how it is done.

It should be readily available to staff at all levels. Forexample, GAO maintains the GeneralPolicies/Procedures Manual (GPPM) and theCommunications Manual (CM) to give guidance onachieving audit quality. Each chapter has a succinctpolicy summary, followed by procedures to be used incomplying with the stated policies.

In addition, GAO publishes more detailed guidance ontechnical subjects. Technical guidance publicationsare normally referred to as “Gray Books.” A list ofthese appears in appendix I.

GAO’s guidance material is accessible either in hardcopy or in electronic mode.

Purpose of ThisGuide

An assignment can go wrong at any stage. It can beill-conceived, improperly directed, poorly planned,badly implemented, and its results can beineffectively communicated. For a variety of reasons,it can fail to meet its customers’ needs.

An appropriate quality control system identifies orflags those factors that could jeopardize the quality ofan audit and establishes processes or procedures that

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promptly identify and correct problems before theyoccur. For example, faulty assignment design couldbe detected during referencing or in a report reviewstage, but that is far too late to deal effectively withthe problem. At that point, little more can be donethan to write around the problem, salvaging what is atbest a bad situation. To be most effective and toreduce assignment cost, design flaws must bedetected in the assignment planning phase or early inthe data collection and analysis phase to allow forappropriate intervention and redirection.

The purpose of this guide is to provide helpful hintsfor use by federal, state, and local audit organizationsin designing their systems to ensure consistent qualityproducts that can be relied on by customers andstakeholders.

It raises key questions that managers and staff shouldbe able to answer at key stages of the assignment.

Key Questions Figure 1.1 illustrates key questions that anappropriate quality control system should addressand the remainder of this guide’s chapters attempt toaddress these key questions.

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Figure 1.1

• Selecting those jobs that will make acontribution—doing the right job. Each job requiresresources that could have been used on another job.Most audit organizations have “must do” jobs. Theyalso have considerable latitude in using the rest oftheir resources to seek a balanced portfolio—basedon needs, capability, and resources. In exercising thatlatitude, staff should be able to answer questions suchas: Is the job selection a wise one? Does it respond

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appropriately to a request or to user needs? Does thejob help build staff capability? Are the benefits of thejob greater than could have been obtained if otherwork were done? How do you know? (See ch. 2.)

• Ensuring the quality of each assignment—doing thejob right. Doing a job right requires efficient use ofresources and high effectiveness. Key questionsinclude the following: Are assignment objectives clearand responsive to customer needs? Is the assignmentscoped to meet objectives? Is the methodologyappropriate? Is job planning adequate? Are staffmotivated and well-supervised? Are assignmentresults effectively communicated? (See ch. 3.)

• Accomplishing intended results. Audit work isperformed for a wide variety of reasons—toaccomplish a range of objectives. Most jobs seekresults that improve the auditee’s operation. The rightjob done the right way provides the best opportunityto get desired results—the bottom line for the auditorand the audit organization. Were the results of ourwork used? Did we have a beneficial impact? Did wemake the difference our work sought? If staff cananswer those questions positively, they are providingthe quality service that stakeholders can expect everytime. (See ch. 4.)

• Demonstrating consistent quality. Care is taken tobuild quality into job selection, planning,performance, reporting, and followup. Individual jobsare given a final quality check before they go out thedoor. But how well have all those policies,procedures, and processes actually worked? Are yousatisfied that they were followed, fit together, andaccomplished intended results? Can we satisfy peersthat the organization’s work is of high quality, meetingapplicable professional standards? (See ch. 5.)

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Purpose To do the right job requires planning—long range andday to day.

This chapter gives guidance for developing a planningsystem that should be in place to help an organizationdetermine what jobs should be done immediately andwhat jobs should be done in the future. It shouldshow how the mosaic fits together to achievelonger-range objectives.

What Are theRight Jobs?

There is no shortage of good jobs. But with limitedresources, each job that is done prevents anotherfrom being done. Good jobs should give way to betterones.

Audit organizations must meet many requirements.Decisions must be made on what to do first and overtime. Many factors influence those decisions. A goodplanning system can help ensure good choices.

Key Factors inPlanning

While audit organizations share the need to plan, nosingle planning system likely meets the needs of each.But answering some key questions can help developquality plans:

• What are the interests and/or needs of the legislative(or other) body that the audit organization reports to?How effective are planning efforts in meetinglonger-range legislative requirements and inaddressing current issues as they arise?

• How good is the framework within which plans aredeveloped? Does the planning system provide a goodbasis for making choices within and among programsfor which the organization has auditingresponsibility?

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In all but the smallest audit organizations, workfocuses on many governmental programs andsubprograms and on a range of objectives to makeaudits better and cost less. Sorting this out within aframework makes cross-comparisons easier and helpsto focus what should be done.

• What is the planning horizon? How far does planningreach? A longer-range perspective helps in settingsignificant audit objectives or issues to be addressedthat may be beyond the reach of individualassignments and are attainable only by a series ofrelated jobs.

• Within available resources, how are individualassignments selected to best meet multiyearobjectives? Is there a vehicle for integrating “must do”jobs to help meet longer-range objectives?

A Framework forPlanning

Responsibilities included in mission statements arebroad; planning to meet them requires a sharperfocus. Planning works best when it is focused withina framework. Governmental programs orsubprograms could provide that focus. Should eachprogram or subprogram be a planning area withinwhich economy, efficiency, effectiveness,accountability, and other objectives are sought?Should the framework encourage cross-cuttingissues? Does it permit work that evaluatesmanagement and accountability across programs tobe arrayed and evaluated in relation to other planningobjectives?

The planning framework and areas it comprises couldvary. However, the one selected should represent topmanagement’s judgment of how best to address theareas of responsibility.

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Once approved, planning areas will likely be the focusof work for a considerable period. While an approvedplan is an achievement, it should not be viewed inconcrete; instead, it should change when managersconsider it necessary.

Multiyear Plans A good framework provides planning focus—helpingto determine the most productive jobs in a planningarea—and getting the most out of “must do” jobs.Planning works best when it covers a period of yearsin which longer-range objectives can be sought.Individual assignments—with their own currentaccomplishments—can be planned as building blocksto broader, more significant accomplishments.

The length of a multiyear planning cycle depends onthe area that it covers, e.g., when programs arevolatile, a shorter planning period is moreappropriate. But even when the areas include volatileprograms, planning beyond a single year is beneficial.The objectives sought by assignment building blocksneed time to develop.

Key Steps Key steps in multiyear planning include the following:

• Understanding the Area—An Overview. To plan for anarea, the planner should know a great deal about it.He or she should be able to answer questions such as:

- What programs and subprograms does it include?What are their objectives?

- What are the national goals to which the programscontribute? What is their contribution and how dothey relate to those of other program contributors?

- How are the programs viewed by the legislature, theagency, the public, and other stakeholders?

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- What are the present and foreseeable issues?

- What are the economic, technological, political, andsocial trends?

- What is the dollar significance of the programs?What is the potential for savings?

- What effect do the programs have on people?

- Do potential problems of stewardship oraccountability exist?

• Setting Objectives. Analyzing the planning area, alonglines suggested by the overview, will likely suggest alarge number of worthy objectives—with thepotential for significant accomplishments. Althoughthe potential for accomplishment may seem virtuallylimitless, available resources are not. A goodmultiyear plan can sort out alternative objectives andprioritize those that offer the greatest benefit givenavailable resources.

• Developing Strategy. How should each objectiveincluded in the multiyear plan—culled out from otherpossible objectives—be approached? What strategyshould be employed? Will building blocks be used?What is the role of each? How do they relate to eachother? Is there work that must be done? Canmandatory jobs be designed to help meet otherplanned objectives?

The strategy provides a roadmap for assignmentplanning. It identifies principal building blocks toachieve longer-range objectives.

• Providing a Basis for Measurement. How will youknow when planned objectives are accomplished?Have significant results been identified and will

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progress be tracked and measured against them?Does the plan clearly establish what will happenwhen objectives are reached? Are checkpoints builtinto the process to help correct the course whenthings are not going as planned?

CooperativeDevelopment

Responsibility for multiyear planning should beclearly defined. Getting the input of all who can makea contribution should also be unequivocal. The needsand interests of the legislature should beappropriately included.

Does the plan have all the input needed to ensure thatit has an organizationwide perspective? Is it based ona high level of subject matter knowledge andexpertise? As appropriate, have legislative staff,agency officials, outside experts, stakeholders, thinktanks, and interest groups contributed to the richness,vitality, and usefulness of the plan?

Does the plan as developed represent the objectiveand independently derived judgment of the auditorganization? Was that judgment enhanced by acomprehensive knowledge of issues and the factualbasis for differing points of view that are seeminglyinherent in connection with major national programs?

Top ManagementInvolvement

Approved multiyear plans represent majororganizational decisions about resource usage for anextended period. They set basic directions.

Top management involvement is essential. Thisnormally includes (1) providing guidance on plandevelopment, (2) setting resource levels for eachplanning area after considering the needs of allplanning areas, (3) reviewing plan proposals andapproving them, and (4) evaluating progress andproposed updates.

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Updating the Plans Effective plans provide the overall necessarydirection for the audit team. However, as time passes,the plans should be reviewed. As part of thisassessment, the progress and the overall contributionof the work should be examined. Any significantfactors requiring changes to the plans or the overallstrategy should be identified. If necessary, resourcesmay be shifted.

Shorter-TermPlanning

Individual assignments should logically flow from themultiyear plan and contribute to the mosaic structure.The shorter-term work plan identifies the specificassignments that the unit plans to perform and theresources they plan to use.

Assignments that the organization decides toundertake should constitute a balanced portfolio,including jobs the organization must do, those itselects to meet established multiyear objectives, andthose it sees as targets of opportunity. Targets ofopportunity are jobs which were not included in themultiyear plan that offer immediate payoff. Theseassignments represent the organization’s judgment onthe best use of available resources to meet the variousobjectives.

In considering jobs, staff should ask questions suchas:

• Will the proposed job meet user needs? Does it fit intothe organization’s priorities? Is it part of alonger-range plan? How does it contribute to theplan’s objectives? Why is this job the best choice?What benefits will it achieve?

• Will expected benefits exceed likely costs? At thisstage, knowledge about job costs and benefits willprobably be limited. But with limited resources

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available, jobs that are most likely to achieve thegreatest benefits should receive priority.

• How sensitive is the job? What is the climate in whichits findings and recommendations will be judged? Byand large, assignments are performed to meetparticular user needs and to obtain results. Somematters, however, are so significant that they must bepursued regardless of unyielding opposition or greatsensitivity. That kind of decision should be madebefore the job is begun.

• Is the job “doable?” A job’s viability should beconsidered as the job is planned.

If a job is not doable, it may be possible to modify itsobjectives and still realize significant, worthwhileresults. But a job should not be initiated or kept alivewith the hope that things will fall into place later.

• Could another organization do the job? If there is achoice, an audit organization should do those jobs forwhich it is most clearly suited.

In larger audit organizations, work plans can helpalert field offices to upcoming work. They help tocommunicate planned work throughout theorganization, encouraging cooperation and avoidingduplication.

The GAOExample

GAO has broad audit, evaluation, and investigativeauthority covering federal agency operations,activities, and functions and those that are federallyassisted. It also has legislatively defined responsibilityto perform congressionally requested work. A highpercentage of GAO’s work is done in response tospecific requests of congressional committees andmembers.

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Appendix II illustrates GAO’s planning system.

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Purpose This chapter illustrates ways the quality assurancesystem can help in

• designing the job to meet significant objectives,• implementing the design effectively, and• preparing the product to obtain desired results.

Job Design The reasons for the job—its objectives—and the wayit will be done are set by job design. In large measure,the job’s success depends on the quality of theassignment’s design. While changes can and should bemade when they are needed as work progresses, theymay be avoided or at least minimized by quality plans.

Setting Objectives Objectives are the questions or issues that the auditwill address. Clearly defined objectives are a must.Without such clarity, the scoping, planning, andperforming become more difficult, if not impossible.It is during the assignment design that objectivesshould be focused.

If they are vague or excessively broad at the start ofwork, time and money can be wasted byinappropriate methodology, scope, and resultantredirections.

A useful approach is to state assignment objectives asquestions and subquestions. This approach

• helps preclude the perception of prejudged outcomes,• fosters discipline and precision,• facilitates clarity,• helps focus data gathering activities,• helps establish underlying logic,• helps in segmenting work,• guides design, and

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• helps structure the presentation of assignmentresults.

Scoping Scoping an assignment normally involves matterssuch as the number of sites or field locations to bevisited, time frames to be covered, and the type anddepth of work needed to ensure that assignmentobjectives are accomplished and that all applicableaudit standards are met.

In establishing assignment scope, the team shouldconsider questions such as:

• What elements of a finding are required? Is disclosinga particular condition enough or is it necessary toestablish cause and effect? Will it be necessary toevaluate the condition against criteria?

• Will assignment findings relate only to the casesreviewed or will it be necessary to generalize them toa larger universe?

• What are the relevant sources of data? Who/whatholds the data (people, data tapes, files)? Will the databe available? Are they likely to be reliable?

• What kind of information will be required? Forexample, will a judgmental sample be acceptable, orwill a statistically-projectable random sample berequired?

• When will work results be required?

Determining scope may require tradeoffs. Forexample, a more narrow scope may result in a lesspowerful message. But it may be the best that can bedone considering available resources and time. Is themore narrow scope acceptable?

EstablishingMethodology

Designing a job requires selecting the methodologiesto be used in collecting, verifying, and analyzing data.

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A wide variety of methodologies exist, and the choicecan be critical. You cannot choose what you do notknow about. Staff must learn what methodologicaltools are available. They must know whatmethodologies can be used for what purposes and thestrengths and weaknesses of each. They need toanswer questions such as:

• What kinds of comparisons are required?• Which methodology best meets assignment

objectives?• How will data be analyzed?• Will the results that it produces be persuasive and

meet applicable audit standards?• Can it be done in the time available?• Does its application require expertise or skills that are

not available to the audit team? Can they be obtainedfrom elsewhere in the audit organization or throughthe use of outside consultants or experts?

Testing Before the more time-intensive data collection andanalysis phase of the job begins, testing of sampletransactions of key systems to ensure that thesystems work as designed should be performed. Moreextensive testing will generally be performed duringimplementation.

Testing helps to establish the extent to which systemsand data sources can be relied on to meet assignmentobjectives.

Through testing, staff should be able to answerquestions such as:

• Is the system(s) working as intended?• Have agency self-evaluations disclosed system

weaknesses that affect planned work?

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• To what extent can agency internal controls be reliedon?

• Is the agency complying with laws and regulationsthat affect assignment objectives?

• If the work of others or computer-processed data is tobe used, can it be relied on?

Staff should also pretest the reliability and validity ofdata collection instruments. Models to be used by theassignment design should be verified and validated bytesting.

Testing of data sources and methodologies helps todetermine whether the planned design will beexcessively costly or time-consuming to operate.

Detailed JobPlanning

The job plan makes the design operational. Pointsthat should be covered include the following:

• Will the selected methodology used meet objectives?• Has the task analysis identifying the steps needed to

accomplish objectives been done?• Has the source, the type of data to be collected, and

the method of analysis been chosen?• Has the work been segmented?• Have individual responsibilities been assigned?• Does the work sequencing and established time

frames meet customer needs?• Have key decision points and management progress

assessments been established?• Have adequate supervision and monitoring been built

into the plan?• Have applicable auditing standards been considered

and are steps sufficient to address them?• Will the requester or auditee be kept apprised of

progress through periodic briefings?• What type of auditee comments (oral or written) are

most appropriate?

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• How will assignment results be communicated?

An assignment plan should address these questionsand will guide staff on what should be done at eachstage as well as how it is to be done.

Job Staffing Highly skilled and well-trained staff are essential toeffective assignment performance. Staff should havethe range of skills collectively needed to meetassignment objectives. Depending on objectives, thiscould include auditors, accountants, financialspecialists, social science analysts, attorneys, andevaluators as well as experts in a wide range ofdisciplines (e.g., transportation specialists, engineers,natural resource managers, psychologists,economists, actuaries, physical and computerscientists, mathematicians, and statisticians). Fewaudit organizations will have staff with all thesedisciplines and expertise in house, but they should beavailable through contracting when needed for aparticular assignment.

EffectiveImplementation

With the course set by the assignment design, thenext step is for staff to do the work—to collect andanalyze data. The design was carefully developed andtested. It should work—but will it? Were thereunforeseen problems? What effect do they have onassignment success?

Do team members really understand what they needto do? Do they know why it is important? Are theymotivated to do it right?

ProgressMonitoring—CourseCorrection

Staff should follow the plan but not as if it is inconcrete. Requesters’ or auditees’ needs should bekept in focus at all times. Team members should bealert for changing priorities—be proactive and not

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simply reactive. Assignment objectives should berenegotiated and the assignment plan changed whennecessary to meet those needs.

High-quality performance includes proper supervisionand reassessments of the continued appropriatenessof objectives and progress made to achieve them.Answers to these questions would serve the teamwell: Is progress on schedule? Should themethodology be changed or should objectives beredefined in cooperation with the requester? Is theevidence being collected reliable, competent, andsufficient? Should the questions that are being askedbe modified to better accomplish objectives? Do dataaccess problems require special attention?

Performance quality is a shared responsibility. Staffevaluate their own performance and progress on aday-to-day basis. The auditor-in-charge orevaluator-in-charge oversees the assignment andkeeps abreast of progress and problems in meetingmilestones. Problems should be revealed promptly topermit the team to address and resolve them.Scheduled progress assessments with the team bysupervisors or managers who have assignmentresponsibility are helpful to keep assignments infocus and address problems that arise and couldderail the plan.

For example, such meetings could be scheduled at thefollowing points:

• At the start of the assignment. Agreement at that timehelps define objectives and provides anunderstanding of the charge—what is to beaccomplished?

• When the assignment moves from design toimplementation. Is there a reportable message? Hasthe assignment been well thought out and planned?

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Are the scope and methodology adequate to achieveassignment objectives and meet requesters’ orauditees’ needs? Is the assignment still worth theexpected resource investment? Questions such asthese should be answered before extensive resourcesare used to gather and analyze additional data.

• When enough work has been done to assess how wellthe plan is working and whether assignmentobjectives are being met. In GAO, this meeting is heldwhen one-third of the calendar days between thecompletion of job design and the estimated date formessage agreement have elapsed. It reviews progressand determines whether modifications should bemade in assignment scope, methodology, orresources.

• When fieldwork has been completed. Theassignment’s message should have been consideredthroughout the life of the assignment. It is developedearly in the assignment but is constantly refined asadditional evidence is gathered. A messageconference promotes agreement on the messageconsistent with the evidence, the product type,timing, and format that best meets requester’s orauditee’s needs.

Motivation andSupervision

Job success is highly dependent on the team’scommitment—both collectively as a team andindividually as a team member. Assignment designsets the course. Assignment progress reviews andplan modifications help stay the course. However,they do not guarantee desired results; they do notensure that results will be achieved.

Fundamental to quality performance is a motivatedteam which understands how their work relates tooverall assignment objectives. Team members andsupervisors should ask themselves questions such as:Am I enthused about the job? Do I respect other team

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members, am I willing to communicate, and am Iprepared to listen to others’ views? Am I doing thesegments that I am best qualified for? Did I, assupervisor, consider the staff’s interests and strengthsin assigning tasks? Were task descriptions clear? Did Iand team members ask questions when necessary fora complete understanding of expectations?

Am I and team members demonstrating personalpride and professional care? Am I and othersrequesting help and asking questions when necessaryand making suggestions where possible?

Is the team’s supervisor getting firsthand knowledgeof work being done—praising good performance andproviding guidance when needed? Are team membersreceptive to guidance and counsel? Is the team’ssupervisor objective and fair in appraisingperformance? Are team members receptive andopen-minded?

ProductPreparation

All the hard work and contributions of motivated staffduring the design, data collection, and analysis phasesculminate in the assignment’s product. The product isthe part of the assignment that is perhaps mostvisible. It is the primary vehicle for obtaining desiredresults.

Developing the product’s message is a continuingprocess. It begins with assignment initiation andshould be modified as facts are gathered andanalyzed. Tentative findings and conclusions shouldbe tested against accumulated evidence anddiscussed with the auditee to get valuable input andto validate both correctness and completeness. Evenrecommendations should be discussed with theauditee to help ensure that they are doable and willachieve desired results.

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When all or most of the evidence is in, the team andmanagers should meet to reach agreement on theproduct’s message, timing, and format. This can bedone formally in a message conference or moreinformally on simpler issues. The basic purpose ofreaching such agreements is to get everyone’s buy-inand keep surprises to a minimum. Such action shouldalso facilitate timely reporting. The team andmanagers directly responsible for the assignmentshould be able to respond affirmatively to questionssuch as:

• Are the findings and recommendations based oncompetent, reliable, and sufficient evidence?

• Are they responsive to assignment objectives?• Were all applicable auditing standards followed?• Is the message clear, coherent, and persuasive?• Can the recommendations be implemented?• Will they correct the situation identified?• Have the auditees’ views been adequately considered?• Has the requester been informed of the overall

message so that no surprises occur when the productis issued?

Final Quality Checks At this point in the life of an assignment, thoseresponsible for it are convinced of its quality. Is thatenough for the organization? Two other qualitytests—an independent verification of the evidencesupporting the product (referencing) and productreview—can help ensure quality.

Referencing GAO uses a process called referencing to provide anobjective look at the support for the product—acareful evaluation of the evidence. It requires that theperson performing this careful evaluation—thereferencer—be independent, objective, andexperienced. Referencers should have analyticalability and a thorough knowledge of applicable

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standards and audit organization policies andprocedures.

Based on their review, referencers should be able toanswer questions such as:

• Have the workpapers received appropriatesupervisory review?

• Are facts and figures correctly reported as determinedby satisfactory evidence in the workpapers or byindependent mathematical or other checks?

• Are findings adequately supported by the facts in theworkpapers?

• Do conclusions and recommendations flow logicallyfrom the findings?

• Was the report coordinated with key officials withinthe audit organization (e.g., in GAO the AssistantComptrollers General for Policy and Planning andReporting, the Office of the General Counsel, theChief Economist, and the head of other organizationsmay have an interest in the subject matter)? Weretheir comments adequately addressed anddocumented?

• Have the auditee’s views been accurately reportedand are points made in rebuttal accurate andadequately supported?

• Has a qualified person who is not involved in theassignment examined highly technical data? Are theresults of that examination documented in theworkpapers?

Points, questions, and suggestions made by thereferencer may disclose flaws that cannot bepermitted in a high-quality product. They should bedocumented and carefully reviewed by the teamleader and, where necessary, by higher levelmanagers. Action taken on the referencer’s commentsshould also be documented.

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The referencer should also be alert to pertinentevidence in the workpapers that either contradicts orcalls into question facts or statements in the report(negative assurance). Such observations should benoted for management consideration.

Product Review Product review is a quality check to provideassurance that

• higher level managers are satisfied with the overallquality of the product;

• the message is sound, addresses the objectives, andmeets the customers’ needs;

• the message is consistent with prior positions (if not,did the appropriate officials approve the change);

• key units of the audit organization had an opportunityto review the product and agreed with the message;and

• the auditee’s views are appropriately reflected andkey differences have been adequately addressed.

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Getting Results

Purpose Recommendations are made with expectations ofgetting prompt corrective actions that achieve desiredresults.

The quality control system should provide a soundbasis for getting prompt and satisfactory action fromrecommendations. Key elements for enhancing suchaction include

• high-quality recommendations,• commitment,• effective monitoring and followup, and• special attention to key recommendations.

This chapter provides guidance on this importantaspect of audit effectiveness. How to Get Action onAudit Recommendations (GAO/OP-9.2.1) discussesthe subject in greater detail and includes case studies.

High-QualityRecommendations

The report demonstrates the problems in need ofaction, presents the needed corrective action, andidentifies who can take it. High-qualityrecommendations pinpoint needed changes.

In developing recommendations, the team shouldconsider questions such as:

• Is it clear why a change is needed, why currentconditions should not be allowed to continue, andwhat the underlying cause of the problem is?

• Does the recommendation include specific actionsthat should be taken and results that should beachieved?

• Is the recommendation convincing?• Will it correct the root cause of the problem?• Have alternatives been adequately considered?• Is the recommendation feasible and cost-effective?• Is it clear who should take the corrective action?

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Commitment Commitment is believing in the recommendation andin its importance. Individual members of the team cantest their commitment by answering questions like:Am I willing to devote the extra effort to demonstratethe merits of implementing the recommendation? Do Ifully understand the environment in which therecommendation will be received and evaluated? Hasthe team explored options and alternatives toachieving intended results without sacrificing thegoals being sought? Have we created a climate ofhelpfulness and cooperation that generates respectand confidence? Have I made the commitment towork with the audited agency to ensure successfulimplementation of the recommendation?

Staff commitment to results is heightened when

• management emphasizes results as a major objective(measuring outcomes, not outputs);

• tangible results are highlighted and identified assuccessful outcomes;

• followup is emphasized as a significant and valuedresponsibility;

• appraisal and award/reward systems recognize andreinforce the value of audit outcomes and rewardaccomplishments and proactive, innovative, andcreative approaches in achieving desired outcomes;and

• training programs reinforce these values andencourage staff to prepare action plans to getrecommendations accepted and effectivelyimplemented.

Monitoring andFollowupSystems

Monitoring and followup systems should answer twokey questions:

• What improvements were made as a result of thework?

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• Did those improvements achieve the desired result?

Determining actions that were taken onrecommendations require active status monitoring ofrecommendations. Individual responsibilities shouldbe defined and ground rules established that describeminimum required actions, documentation required,and the like. They should leave room for staffinitiative to tailor followup actions to particularrecommendations and the results they seek.

How far should staff go in verifying not only thataction was taken but, more importantly, that itachieved desired results? Staff should be able toanswer questions such as: Are implementation plansand time frames consistent with recommendedactions? Have the steps to carry out the plannedactions been adequately documented? Are theauditees’ estimates of dollar savings or other benefitsreasonable?

Generally, some limited testing of the implementationwould be expected to ensure it is working asintended. For key recommendations, these tests areessential.

Special Attentionto KeyRecommendations

While all recommendations should be aggressivelypursued, some are so significant that added steps areneeded to get them implemented:

• The significance of a recommendation should becommunicated to the auditee as early as possibleduring an assignment.

• Key recommendations should be identified andhighlighted in reports.

• If action on a key recommendation is not progressing,this should be communicated to auditee management.

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The head of an audited organization cannot beexpected to focus on every recommendation;therefore, the auditor must carefully choose thosematters that deserve this special attention.

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Chapter 5

Demonstrating Consistent Quality

Purpose The foregoing chapters give guidance on how to buildand use a system that promotes quality in assignmentselecting, planning, performing, reporting, andfollowing up. This chapter helps determine whetherthe quality control system has resulted in consistentquality throughout the organization measured byoutcomes rather than outputs. It also discusses peerreviews and how they can help provide valuablefeedback and ensure consistent quality.

Internal QualityReviews

How consistent is quality among products andproduct types within and among organizational units?Does the quality control system help ensure thatquality is maintained each time, every time?

Answering these questions requires reviewing andtesting policies and procedures. It also requiresassessments of the quality of individual audits afterthey have been issued. Over time, all organizationalunits should be reviewed and their products tested.Reviewers should be independent of the unit beingreviewed.

This postaudit quality review provides top managerswith an independent assessment of the extent towhich the organization complies with GovernmentAuditing Standards and its own policies andprocedures.

In reviewing compliance with Government AuditingStandards and policies and procedures, questionsshould be answered such as:

• Are policies and procedures consistent withGovernment Auditing Standards?

• Are policies clearly stated and are they doable? Dothey cover key matters on which guidance would behelpful?

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• Are policies unnecessarily prescriptive or do theyleave room for using initiative and objectivity inmeeting assignment objectives?

• Are policies and procedures readily accessible bystaff?

• Have staff been adequately trained in theorganization’s policies and procedures?

• How is compliance with policies and proceduresassessed?

Reviewing individual assignments provides valuablefeedback to managers on how well selectedorganizational units consistently achieve the expectedquality. The number and type of assignments selectedfor testing should provide a reasonable basis formaking this assessment. In reviewing individualassignments, questions should be answered such as:

• Was the team collectively qualified for the tasksrequired? Did individual staff members meetapplicable continuing professional educationrequirements?

• Do the workpapers indicate any unresolved questionsconcerning external or personal impairments toindependence?

• Was there adequate evidence that a determinationwas made of applicable standards and that they werecomplied with?

• Were assignment objectives clear and responsive torequesters’ or auditees’ needs? Was the assignmentscope adequate? Was methodology appropriate? Weredata sources, methodology, and data collectioninstruments tested? Was a detailed audit planprepared?

• Was the assignment plan effectively implemented?Were deviations from the plan consistent withGovernment Auditing Standards and appropriate toassignment objectives? Were the workpapers

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adequately documented, summarized, indexed, andreviewed?

• Was there evidence that supervision was timely,adequate, and responsive to staff needs andprofessional development?

• Was the reliability of computer-processed dataestablished when their use was significant toassignment objectives?

• Was the reliability of significant data supplied byothers appropriately established?

• Were applicable internal controls identified, tested,and appropriately relied on?

• Was compliance with laws and regulations applicableto assignment objectives appropriately tested?

• Were findings and conclusions supported in theworkpapers and was the evidence relevant,competent, and sufficient?

• Were auditees’ positions on findings andrecommendations obtained and appropriatelyhandled in report development and presentation?

• Was the report timely?• Did the report meet Government Auditing Standards

and organizational policies and procedures,assignment objectives, and requesters’ or auditees’needs?

• Did conclusions follow reasonably from the findings?• Were recommendations responsive to the root cause

of deficiencies detected? Were they clearly doableand cost-effective?

• Was there adequate evidence that the facts in thereport were independently referenced? Werereferencer’s questions appropriately handled?

• Was the report reviewed for logic and consistency ofpositions taken?

Audit Effectiveness An effective quality control system needs to do morethan ensure the quality with which work wasperformed. It also needs to determine what the work

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accomplished and how the result was viewed bycustomers and stakeholders.

This can be done by system approaches such as:

• Surveys of customers and stakeholders. Did theyconsider the work to be timely and responsive to theirneeds? Did they find it convincing and useful? Werethey able to use the results—implement therecommendations? Do they believe that therecommendations achieved their intended results?

• Recommendation tracking and reporting systems. Isthere a system in place to followup on allrecommendations and to determine what action wastaken with respect to them? How were implementingactions and their results tested? Was special attentiongiven to key recommendations? Wereaccomplishments reported and major contributorsidentified?

• Performance measurement and award/rewardsystems. Do those systems measure and emphasizeoutcomes or do they give inordinate emphasis tofactors such as report production?

Peer Review The fourth general Government Auditing Standardsstates:

“Audit organizations conducting government audits should . . .participate in an external quality control review program.”

The following are some organizations that help auditorganizations comply with Government AuditingStandards:

• The President’s Council on Integrity and Efficiency(PCIE). PCIE publishes standards and detailedguidance for conducting reviews of the auditoperations of the Offices of the Inspector General

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(OIGs). It operates a peer review program for theOIGs.

• The National State Auditors Association (NSAA). Peerreviews are conducted by NSAA in accordance withpolicies and procedures developed by the NSAA PeerReview Committee and approved by NSAA members.The program is administered by the NationalAssociation of State Auditors, Comptrollers, andTreasurers.

• National Association of Local Government Auditors(NALGA). NALGA has prepared a guide to helpauditors meet the requirements of GovernmentAuditing Standards. The NALGA Peer ReviewCommittee responds to questions about the guide andhelps to identify potential reviewers. The committeereceives reports issued using the NALGA guide andwill serve as a mediator or arbitrator of unresolveddisputes between an audit organization and a reviewteam.

• The Institute of Internal Auditors (IIA). IIA willarrange peer reviews using Government AuditingStandards or its own standards.

• The American Institute of Certified PublicAccountants (AICPA). AICPA has definedrequirements for the peer review of member firms.The AICPA “Peer Review Manual” includes guidelinescovering audit engagements of state or localgovernmental entities, including those receivingfederal financial assistance. The guidelines includequestions for use when the engagement is subject toGovernment Auditing Standards.

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Appendix I

Listing of GAO’s Technical GuidancePublications (Gray Books)

Publication Number Title1

AFMD-2.1.1 A Glossary of Terms Used in the Federal BudgetProcess (Rev. Jan. 1993)

AFMD-2.1.22 Critical Factors in Developing Automated Accountingand Financial Management System (Jan. 1987)

AFMD-4.1.0 Establishing Government Auditing Standards(Aug. 1990)

AFMD-4.1.12 Government Auditing Standards (July 1988)

OP-4.1.2 Assessing Compliance With Applicable Laws andRegulations (Dec. 1989)

AFMD-4.1.3 Standards For Internal Controls In The FederalGovernment (1983)

OP-4.1.4 Assessing Internal Controls in Performance Audits(Sept. 1990)

AFMD-4.1.52 Evaluating Internal Controls in Computer-BasedSystems: Audit Guide (June 1981)

OP-4.1.6 An Audit Quality Control System: Essential Elements(Aug. 1993)

OP-4.1.7 Performing GAO’s Work: Where to Find Guidance andHelp (Rev. Aug. 1993)

OIMC-6.1.1 Mission and Assignment Tracking System (MATS)Users’ Manual (Aug. 1991)

OP-6.3.1 Message Conferences: A Guide to Improving ProductQuality and Timeliness (Rev. June 1992)

1Gray books include more detailed guidance on technical subjectsthat are included in the GPPM and the CM.

2Under revision.

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Appendix I

Listing of GAO’s Technical Guidance

Publications (Gray Books)

AFMD-8.1.12 Guide for Review of Independent Public AccountantWork (Dec. 1988)

AFMD-8.1.2 Guide for Evaluating and Testing Controls OverSensitive Payments (Rev. May 1993)

OP-8.1.3 Assessing the Reliability of Computer-Processed Data(Sept. 1990)

IMTEC-8.1.4 Information Technology: An Audit Guide forAssessing Acquisition Risk (Dec. 1992)

IMTEC-8.1.4SW3 Quick Reference for Automated Audit Guide(Dec. 1992)

IMTEC-8.1.6 Information Technology: A Model to Help ManagersDecrease Acquisition Risks (Aug. 1990)

OP-9.2.1 How to Get Action on Audit Recommendations(July 1991)

PEMD-10.1.2 The Evaluation Synthesis (Rev. Mar. 1992)

PEMD-10.1.32 Content Analysis: A Methodology for Structuring andAnalyzing Written Material (Mar. 1989)

PEMD-10.1.4 Designing Evaluations (May 1991)

PEMD-10.1.5 Using Structured Interviewing Techniques (July 1991)

PEMD-10.1.6 Using Statistical Sampling (Rev. May 1992)

PEMD-10.1.72 Developing and Using Questionnaires (July 1986)

PEMD-10.1.9 Case Study Evaluations (Nov. 1990)

PEMD-10.1.10 Prospective Evaluation Methods: The ProspectiveEvaluation Synthesis (Nov. 1990)

3Software to accompany GAO/IMTEC-8.1.4.

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Appendix I

Listing of GAO’s Technical Guidance

Publications (Gray Books)

PEMD-10.1.11 Quantitative Data Analysis: An Introduction(June 1992)

IMTEC-11.1.1 Preparing, Documenting, and ReferencingMicrocomputer Data Base Applications (Apr. 1991)

IMTEC-11.1.2 Planning, Preparing, Documenting, and ReferencingSAS Products (Aug. 1992)

IMTEC-11.1.3 Preparing, Documenting, and Referencing LotusSpreadsheets (Nov. 1987)

OSS-11.1.4 Security Highlights (Apr. 1991)

OIMC-12.1.2 Writing Guidelines (Sept. 1986)

OIMC-12.9.1 TextFrame: Policies and Instructions for ProducingPresentation Materials (Oct. 1988)

OIMC-12.14.1 Preparing Publications for Typesetting (Rev.Apr. 1993)

OIMC-12.14.32 Publishing Survival Guide (June 1990)

AFMD-12.19.1 How to Avoid a Substandard Audit: Suggestions forProcuring an Audit (May 1988)

AFMD-12.19.3 Guide to Federal Agencies’ Procurement of AuditServices From Independent Public Accountants(Apr. 1991)

AFMD-12.19.4 The Chief Financial Officers Act: A Mandate forFederal Financial Management Reform (Sept. 1991)

AFMD-12.19.5A Financial Audit Manual (June 1992)

OGC-15.1.12 Guidance on Employee Ethics and Conduct(June 1986)

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Appendix I

Listing of GAO’s Technical Guidance

Publications (Gray Books)

OSI-16.1.2 Investigators’ Guide to Sources of Information(Jan. 1992)

OCE-17.1.1 Discount Rate Policy (May 1991)

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Appendix II

Doing the Right Job—The GAOExample

LegislativelyDefined Role

The Budget and Accounting Act of 1921 gave GAObroad authority and responsibility to audit federalagencies and to report on all matters related to thereceipt, disbursement, and use of public money.

Through amendments to the 1921 act and otherGAO-specific legislation, GAO audits federallyassisted programs and government corporations to

• determine the extent to which accounting andfinancial reports fully disclose the financialoperations of departments and agencies;

• assess whether financial transactions have beenconducted in accordance with laws, regulations, orother legal requirements;

• evaluate whether public funds have beeneconomically and efficiently administered andexpended;

• assess the extent to which programs are achievingtheir intended purposes; and

• ensure consistent operation of financial accountingsystems and the application of accounting principles,standards, and procedures.

While granting the Comptroller General broaddiscretion to decide which programs to audit, theCongress retained the right to request specific GAOassistance. GAO has legislatively definedresponsibility to respond to the requests of House andSenate Committees and to Joint Committees havingjurisdiction over programs and activities.

As a matter of policy, GAO assigns equal status torequests from Ranking Minority Members and torequests from committee chairs. To the extentpractical, GAO also responds to individual members’requests. At present, about 80 percent of GAO’sresources are used in response to congressionalrequests.

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Doing the Right Job—The GAO

Example

The Touchstonefor Planning

In carrying out its legislatively definedresponsibilities, GAO establishes quality as a drivingforce.

The following is the mission statement on which itsplanning and performance is based:

“We seek to achieve honest, efficient management and fullaccountability throughout government. We serve the public interestby providing members of the Congress and others who make policywith accurate information, unbiased analysis, and objectiverecommendations on how best to use public resources in supportof the security and well-being of the American people.

“Commitment to quality is the single most important principlegoverning our work.”

PlanningFramework

To fulfill its comprehensive audit responsibilities,GAO’s planning framework has a wide-rangingperspective. It fosters jobs that (1) make individualprograms work better and cost less; (2) highlightthose things that work best in particular programs ormanagement areas so that they can be considered forapplication in others; and (3) determine whetherprograms are overlapping, duplicative, working atcross-purposes, or effectively contributing to definednational goals.

GAO’s planning framework is built around issues andissue areas. Typically, an issue area is a functional ormajor responsibility area that affects a major segmentof American society and is tied to large governmentexpenditures. An issue, on the other hand, is asignificant topic or question of national importancewithin an issue area.

Currently, GAO’s planning is built around 36 issueareas. They evaluate effectiveness, economy,efficiency, and accountability of federal programs in

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Doing the Right Job—The GAO

Example

areas such as income security, energy, environmentalprotection, health, work force quality, etc.

Issues and issue areas are redefined or changed whennecessary to respond to congressional needs, newgovernment initiatives, or when GAO’s managersbelieve that other alignments would provide betterresults.

Multiyear Plans GAO managers develop multiyear plans for each issuearea. Depending on the issue area, plans normallycover 2 to 3 years.

Key Steps In developing the plan, GAO managers do thefollowing:

• Identify the most significant issues the Congress andthe country will face during the planning period,determine what contribution GAO can make, andidentify the level of GAO resources that canreasonably be applied to each.

For example, GAO’s Medicare and Medicaid issuearea could focus its planning on issues such as:

- How can Medicare payment methods be changedto improve the incentives to provide cost-effectivecare? (Medicare Payment Methods)

- What alternative financing and delivery modelswould suggest ways to improve access and reducecost growth? (Alternative Financing and DeliveryModels)

• Determine realistic objectives for each issue.Objectives focus on expected results. Those resultscould be program improvement, savings, agency

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Example

efficiency, or assistance to the Congress in making akey decision. They are focused on external action byan agency or the Congress to achieve particularresults.

For example, an objective of the Medicare PaymentMethods Issue could be to improve Medicare’sexisting payment reforms to encourage additionalsavings.

• State the anticipated results of accomplishing eachobjective. GAO defines anticipated results as thespecific contributions or measurable results itexpects to achieve and the time when they areexpected to occur. Taken together, they constitute theaccomplishment of an objective. The specific impacton an agency or program is the focus for anticipatedresults.

• Develop the strategy to be followed in planningassignments. Strategy is the approach, plan of action,or method needed to meet issue objectives andanticipated results.

For example, a strategy for the Medicare PaymentMethods Issue could be to perform studies to(1) monitor the implementation of payment reformsfor physicians and hospitals and (2) determinewhether payments are appropriate in the parts ofMedicare not already covered by major reforms. Thestrategy also includes the major efforts, such aseconometric modeling of cost growth in hospitals.

CooperativeDevelopment

In preparing a multiyear plan for an issue area,managers and staff get a wide range of input to ensurethat it has GAO-wide perspective and is based on ahigh level of subject matter knowledge and expertise.The views of key congressional committee staff

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Doing the Right Job—The GAO

Example

representing both majority and minority parties andthe agency are particularly important.

For planning conferences, participants areencouraged to freely exchange ideas, thereby addingto the quality of the plans. Participants could includeGAO staff, congressional representatives or staff,agency officials, and outside experts.

Top ManagementParticipation

The Comptroller General and other top GAOmanagers provide initial guidance and continuingoversight of issue area planning and performance.They take the following actions:

• Conduct sessions to discuss new issue area plans andprovide guidance for planned issues and objectives.

• Review and approve issue area plans.• Allocate resources to carry out the objectives of

approved plans.• Conduct a weekly review of incoming congressional

requests, all new assignments, and assignmentsmoving into data collection and analysis or productpreparation phases. Among other objectives, thisreview considers consistency with issue areaplanning.

• Discuss individual assignments of particularcomplexity, interest, or sensitivity.

Annual Updates Because events may significantly affect even the bestof plans, GAO reviews and updates its multiyear plansannually. The updates (1) promote accountability bycomparing performance and results with plans and(2) keep plans current.

The effort involved in preparing an update is typicallyless extensive than for new plans. However, thiseffort should include a discussion of GAO’s principal

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Appendix II

Doing the Right Job—The GAO

Example

customer needs and major efforts designed to meetthem. Updates assess what has been achieved to datefor each issue as well as needed additions, deletions,or plan revisions.

If reevaluation of an issue area establishes the needfor redirection or for extensive changes, a newplan—rather than an update—is prepared.

GAO defines major jobs to be done during the periodand assigns priorities. It ensures that individual jobsare consistent with issue area objectives and arewithin assigned resources.

This process alerts GAO’s field offices to potentialwork and helps to communicate planned workthroughout GAO, encouraging coordination andavoiding duplication.

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