Identifying Efficiency Constraints

While collecting knowledge of business, the auditor may conclude that efficiency is being limited by specific policies or some aspects of collective agreements.

For example, there may be explicit provisions governing working hours (such as no night shift) limiting the efficient utilization of expensive equipment (such as CT scanners in hospitals). As a result, the equipment may be idle in the evenings despite waiting lists and demand for services during those hours.

Similarly, there may be government policies prohibiting outsourcing or requiring decentralization of service delivery. These are situations where auditors need to tread carefully because audit mandates do not usually include commenting on the merits of government policy. However, auditors can sometimes effectively report the negative impact of such policies on efficiency without directly criticizing the policies. Legislators and governing bodies will then be better able to decide whether the impact is significant enough to justify a policy change.

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