Value for money audit: Curbing financial mismanagement, wastage, and leakages

During the week, yet another troubling headline appeared in our newspapers: “Contractors Flee with ₦3.9bn, Abandon 129 FG Projects—BudgIT.” This is a stark reminder of the persistent financial mismanagement, leakages, and wastage that plague the Nigerian public sector, a challenge that is noticeably less common in the private sector.

There is a prevailing notion that Nigeria’s collective wealth is like a “national cake”—one that individuals, without permission, can slice off as much as they desire, even setting aside portions for future personal use or for generations unborn. This perception has fuelled a culture where public resources are treated with impunity. Additionally, there exists a deeply entrenched belief that government businesses belong to no one, and therefore, expectations for transparency and accountability are significantly lower compared to the private sector.

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Tackling the issue of financial mismanagement, wastage, and leakages requires well-thought-out and strategic approaches. Measures such as thorough investigations, parliamentary oversight, whistleblowing mechanisms, statutory audits, effective budgeting, internal audits, and robust financial reporting frameworks are crucial. Additionally, strengthening internal control mechanisms, ensuring segregation of duties, and enforcing strict financial accountability standards can go a long way in curbing the inefficiencies in public finance. However, one of the most effective approaches to addressing these challenges is the Value for Money (VFM) Audit, which forms the focus of this discussion.

Understanding the Value for Money (VFM) audit

A Value for Money (VFM) audit, also referred to as a comprehensive audit, performance audit, operational audit, or management audit, is designed to ensure the optimal use of scarce resources in both the public and private sectors. Its primary objective is to maximise output from available resources while achieving organisational or sectoral goals.

In the public sector, where VFM audits are widely implemented, auditors are required to assess and report critical issues such as deficiencies in revenue collection processes, wastage of public funds, systemic leakages, and financial mismanagement by those entrusted with handling public finances. The ultimate goal of VFM audits is to provide citizens with a clear understanding of whether public funds are being utilised efficiently and effectively.

According to the Consultative Committee of Accountancy Bodies (CCAB) in the UK, a VFM audit is defined as “an appraisal of management’s performance in securing economy, efficiency, and effectiveness in the use of resources.” Similarly, the U.S. General Accounting Office Auditing Standard (GAOAS) describes it as “a performance audit encompassing economy, efficiency, and effectiveness.” These definitions reinforce the fact that a well-implemented VFM audit seeks to establish whether public sector spending is justifiable and beneficial to the citizens.

The three pillars of a VFM audit: economy, efficiency, and effectiveness

The foundation of a VFM audit is based on three core principles: economy, efficiency, and effectiveness, commonly referred to as the “Three E’s.”

Economy Audit focuses on minimising the cost of resources used for a particular activity while maintaining an appropriate level of quality. It examines whether government agencies procure goods and services at the lowest possible cost and highlights cases of excessive or unnecessary expenditures. In simpler terms, an economic audit aims to answer the question, “Are we acquiring resources at the best possible cost?”

Efficiency Audit evaluates the relationship between inputs (resources invested) and outputs (results achieved). It seeks to ensure that resources are being used optimally to produce the highest possible level of service delivery. Efficiency is primarily concerned with “doing things right” and ensuring that resources are not wasted due to poor planning or execution.

Effectiveness Audit assesses the extent to which predetermined goals and objectives have been achieved. It measures whether a particular government program or project is meeting its intended objectives and fulfilling its purpose. Effectiveness is all about “doing the right things” and ensuring that public funds are allocated to projects that deliver tangible and meaningful benefits to citizens.

Challenges in implementing VFM audits

Despite the clear advantages of VFM audits, their implementation faces significant challenges. One of the biggest obstacles is corruption, as public officials often manipulate financial records to conceal mismanagement. Fraud and the relentless pursuit of illicit wealth among those in authority also pose serious threats to the effectiveness of VFM audits.

Another major challenge is the knowledge gap among those responsible for carrying out the audits. Many public sector officials lack the requisite expertise to conduct thorough financial assessments, leading to inefficiencies in the process. Additionally, weak internal control systems and inadequate financial oversight further undermine the credibility of VFM assessments.

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There is also the issue of self-aggrandisement, where public officials prioritise personal financial gain over national development. The widely held belief that government business belongs to no one leads to reckless financial decisions and poor accountability. Furthermore, the absence of clearly defined performance metrics makes it difficult to measure the success of government initiatives, thereby weakening the impact of VFM audits.

Benefits of Value for Money (VFM) audits

When properly implemented, VFM audits offer numerous benefits that can significantly improve public financial management. One key advantage is that they enhance the budgeting process, ensuring that public funds are judiciously allocated and utilised. By minimising costs while maintaining quality, VFM audits promote cost-effectiveness in public infrastructure projects and other government initiatives.

Another major benefit is the promotion of transparency and accountability in public financial management. When government agencies are required to justify their expenditures, it discourages financial mismanagement and builds public trust. Citizens are more likely to have confidence in government institutions when they see clear evidence that their taxes are being used efficiently.

Moreover, VFM audits contribute to good governance by strengthening internal control measures and reducing opportunities for fraud and corruption. They help public officials identify and mitigate risks, ensuring that government programs and projects deliver tangible benefits to the people.

Additionally, VFM audits improve productivity and service delivery in the public sector by discouraging wastage and financial leakages. By ensuring optimal resource utilisation, these audits enable better decision-making and enhance the overall effectiveness of government operations.

Above all, a well-executed VFM audit eliminates inefficiencies, blocks financial loopholes, and strengthens institutional accountability. By upholding strict financial controls, it reduces the risk of fraud, enhances public sector performance, and ensures that national resources are used for the benefit of all citizens.

Conclusion

The importance of Value for Money (VFM) audits in ensuring financial discipline and accountability in the public sector cannot be overemphasised. Given the persistent issues of financial mismanagement, wastage, and leakages in Nigeria’s public sector, the implementation of robust VFM auditing frameworks is more urgent than ever.

By embracing the principles of economy, efficiency, and effectiveness, government institutions can improve service delivery, minimise financial wastage, and enhance public confidence in governance. However, achieving this requires a commitment to transparency, strong internal controls, and a culture of accountability among public officials. Only then can Nigeria’s public sector be transformed into a model of financial discipline and efficiency.

Kingsley Ndubueze Ayozie, KJW, FCTI, FCA, Public Affairs Analyst & Chartered Accountant, Writes from Lagos.