Supervising System and Business Control of Local Self-Government Units in Performance Audit Function

Supervising System and Business Control of Local Self-Government Units in Performance Audit Function

Jelica Eremić-Đođić (University EDUCONS, Serbia) and Ivan Bosnjak (Ministry of Public Administration and Local Self-Goverment, Serbia)
DOI: 10.4018/978-1-7998-4601-7.ch017


As everywhere in the world, resources in the Republic of Serbia are limited. Almost half of the resources are covered by public spending. A well-established oversight of the budget process provides real assistance in performance audit, and it is also an instrument of a permanent guidance and correction. The State Audit Office is often assigning itself tasks to carry out the activities related to the performance audit process. In this way, the state audit approaches systematically to the examination of business activities of all budget users. The basic task of the performance audit lies in examining the economy, efficiency, and effectiveness of the use of public funds by using various analyses, making comparisons, and analyzing indicators. This chapter will describe the proposal for a procedure that ensures a continuous process of supervision and control of business operations in local self-government units in the function of performance audits.
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However, there are few studies on the use of resources and costs for local government, which can be used for this purpose. Considering that financial management and control are an area of implementation in local governments, practice shows that there have been no comprehensive studies on the use of resources and associated costs so far that we can accept or disrupt their results. That is why this research is a novelty because it speaks about the steps that need to be taken in order to establish continuous supervision over financial management and control in local governments, which, in addition to numerous advantages, would definitely ensure the tracking of documents which we can say with certainty that signifies both innovations in Serbia and relevant developing countries. (D. Coderre, 2011)

Internal auditors / controllers who provide consulting services to their organizations are in a position where they can contribute to the improvement of the overall control system. The data they collect through any type of consulting assignment can almost always be used to develop control throughout the organization. In addition, an increasing number of audit teams are giving management advice on designing new processes and systems. (M. Stanišić, 2015)

The management of a legal entity has the primary responsibility for designing, implementing and overseeing the operation of internal control systems, with a view to pursuing the specific objectives of the organization, including the prevention and detection of criminal acts. (A. Petković, 2010)

The Performance Audit of Budget Users

In order to make a more realistic assessment of the use of public funds and to determine whether the principles of economy (Table 1) are respected, it is necessary to use certain analyses and observe indicators in order to draw conclusions that describe their comparability and affect realization of business tasks.

Table 1.
Principles of economy
Cost-effectivenessMinimizing the cost of resources used with the right quality of products or services.
EfficiencyIn its relation to cost-effectiveness, it provides an answer if the funds have been used optimally and appropriately. So, it can be evaluated whether similar results can be achieved with fewer resources.
EffectivenessIt refers to the goals achievement and the relationship between them, the outcomes, ie. purpose. The way in which it can be measured is the effects on the assets used to realize them.
ImpartialityA defined concept on equal opportunities

Source: authors (2019)

Developing the modern economy, the professional profile of auditing is changing as well. The purpose of the audit is not to have one structure controling other, but to assist the company to which it is intended. (Ј.Еremić-Đođić, B.Laban & А. Тоmić, 2017).

The performance audit is made up of connected elements that have repercussions on each other. These elements are usually the findings, tasks, inputs, activities, results and outcomes, ie effects on the whole process. Most auditors use the input-output model for this purpose to successfully create the elements for their audit analysis based on which the audit report is prepared.

Because of the fact that performance audit is more flexible than other audits (such as business audits), it does not use predefined templates and forms in its work. Its work is based on research and valuation method and is not uniform.However it is based on its own assessments and interpretations.

Key Terms in this Chapter

Performance Audit: It means examining the use of budgetary and other public funds to obtain sufficient, adequate and reliable evidence to report. It explains whether the assets of the audited have been used in accordance with the principles of economy, efficiency and effectiveness and in accordance with the intended goals.

Earmarked Funds: Funds whose spending and purpose are determined by the contract and the decision of the local self-government unit.

Business Plan: A plan for spending the organization funds that has been accepted by the state and should be complied with.

local government: Local self-government is an autonomous system of local community management, which is based on inner parts of the state territory.

Procedure: Issued process activities (in this case the control process) that takes place in the local government.

Control Procedure: A procedure for controlling specific business activities designed for a specific purpose.

COSO: Committee of Sponsoring Organizations of the Treadway Commission.

Risk: Implies that a particular activity will not be successfully performed because there is a lack of control over that activity, which can cause consequences and has to be removed from that activity.

Continuous Control: Control that continuously checks the application of procedures and regulations in an entity's business discovering the weaknesses of individuals, parts, and functions at the same time.

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