## Performance Audit – Economy, Efficiency and Effectiveness

### When Is Performance Audit Conducted?

Performance Audit applies where large financial expenditure has been incurred on a:

Programme
Scheme
Project

The audit checks whether money was spent economically and whether it yielded results as expected.

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### The Three Es of Performance Audit

E	Name	Question Asked
E1	Economy Audit	Did the government acquire physical/human/financial resources in an economic manner? (Minimum cost for the same quality)
E2	Effectiveness Audit	Were the overall targeted objectives achieved? (Did the programme actually deliver its goals?)
E3	Efficiency Audit	Was there optimum utilisation of resources? (Did resources produce maximum output?)

> Memory aid: Economy = buying right, Efficiency = using right, Effectiveness = achieving right.

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### Procedure for Performance Audit

Performance audit follows a structured sequence:

1. Identification of audit topic

2. Preliminary study / planning

3. Execution (field audit work)

4. Reporting (audit findings and recommendations)

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### Distinguishing Performance Audit from Regularity Audit

Dimension	Regularity (Compliance) Audit	Performance Audit
Focus	Rules, sanctions, fund provision	Value for money
Question	Was it done correctly?	Was it done well?
Scope	Transaction-level	Programme/scheme-level
Judgement	Black-and-white (rule met or not)	Qualitative assessment

Worked example

### Example 1

Q: A government irrigation scheme spent ₹500 crore. Water supply improved only in 20% of the target area. The government purchased pipes at market rate with proper sanctions. Which type of Performance Audit finding is this?

A: This is primarily an Effectiveness Audit finding — the targeted objective (irrigating the full area) was not achieved. If the pipes could have been procured cheaper, it would also be an Economy Audit issue.

### Example 2

Q: Under Performance Audit, what does 'Economy' specifically refer to?

A: Economy refers to acquiring resources — physical, human, and financial — at the minimum cost consistent with the required quality and quantity. It is about the input cost, not the output or outcome.

⚠️ Common exam mistakes

Confusing Efficiency (optimum use of resources → output) with Effectiveness (achieving targeted objectives → outcome) — Efficiency is about the process; Effectiveness is about the result.
Thinking Performance Audit replaces Regularity Audit — both coexist; Performance Audit is an additional layer that asks 'value for money' questions.
Forgetting 'Economy' is about the acquisition of resources at minimum cost, not about whether the project was completed cheaply overall.
Mixing up the four-step procedure sequence — the correct order is: Identification → Preliminary Study/Planning → Execution → Reporting.

Reference:

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Performance Audit – Economy, Efficiency and Effectiveness (3Es)

Worked example

⚠️ Common exam mistakes