Performance audit, also called value-for-money audit, judges whether a programme or activity achieved its goals at a reasonable cost, using three tests: economy, efficiency and effectiveness. Operational audit looks at how a process runs; performance audit asks whether the whole programme was worth what it cost. The two overlap, but their questions and their reports differ.
Last reviewed: 17 October 2026. Facts checked. The "three Es" (economy, efficiency, effectiveness) are described from general practice, not a primary text, and the CAG's performance audit is described as in our existing government audit article. We did not check any specific ICAI Standard on Internal Audit number, because numbering is being updated.
The three Es
| Test | Plain meaning | Question |
|---|---|---|
| Economy | Spending less for the same quality | Did we buy inputs at a reasonable price? |
| Efficiency | Getting more output from the same input | Did we use resources well? |
| Effectiveness | Reaching the intended result | Did the programme achieve its goal? |
Some bodies add a fourth, equity or ethics, but the three Es are the common core.
Where it is used
Performance audit is most common in the public sector, where the CAG carries it out on government programmes. Our article on government audit in India explains this.
It is also used in private organisations for projects, shared services, large capital programmes and outsourced contracts. In these settings it often goes by "value-for-money review".
How it differs from operational audit
| Aspect | Operational audit | Performance / value-for-money audit |
|---|---|---|
| Unit of review | A process or function | A programme, project or policy |
| Main question | Is the process designed well and working? | Did it deliver results at fair cost? |
| Benchmark | Policy, control design, good practice | Stated objectives, targets and cost |
| Focus | Controls and efficiency | Outcomes and economy as well |
| Typical user | Process owner, audit committee | Board, funder, legislature |
An example makes it concrete. An operational audit of procurement checks that approvals and vendor controls work. A performance audit of a large procurement programme asks whether the programme bought the right things, at fair prices, and met its purpose.
See operational audit guide for the process-level view.
When objectives are vague
A performance audit needs criteria. If the programme never defined success, the first finding may be that no measurable target exists. Be careful here. You cannot judge a programme against targets nobody set. State the criteria you used and why they are fair, and agree them with management in advance where you can.
How to run one
- Pick the programme and state the audit question. For example, "Did the training programme raise employee productivity at reasonable cost?"
- Set criteria. Use the programme's own objectives, plus benchmarks such as past cost per unit or comparable contracts.
- Collect data. Cost records, output and outcome data, user feedback.
- Compare to criteria. Look for the gap between result and target, and between cost and benchmark.
- Find causes. A weak result may come from design, execution or outside factors.
- Report. State the findings, the evidence, the cause and practical recommendations.
Limits to respect
- Outcomes lag. Some results appear years later. Say what you can and cannot conclude.
- Cost is not the only measure. The cheapest option is not always the best value.
- Do not second-guess policy. Audit how the policy was carried out, not whether the policy was right. That is for the governing body.
A worked example (illustrative)
A company runs a large training programme for its sales staff. The aim is higher sales per person.
- Economy: Were trainers and venues bought at reasonable prices, compared with past contracts?
- Efficiency: Was the cost per trained person in line with similar programmes? Were sessions well attended?
- Effectiveness: Did sales per person change for trained staff compared with untrained staff, allowing for other causes such as new products?
The report might find that costs were fair and attendance good, but that no one measured the effect on sales. The recommendation is then to define a measure before the next round. That is a useful finding even when the answer on effectiveness is "cannot yet tell".
Where internal audit fits
The IIA's Three Lines Model describes internal audit as providing independent and objective assurance and advice on governance and risk management. Performance review is one way to give that assurance on large programmes. See combined assurance and the three lines model.
Frequently Asked Questions
What is a performance audit?
An audit that assesses whether a programme achieved its objectives economically, efficiently and effectively.
Is value-for-money audit the same as performance audit?
In practice the terms are used for the same kind of work. Value-for-money is the common term in business settings and performance audit in the public sector.
How is performance audit different from operational audit?
Operational audit tests how a process runs. Performance audit judges the results of a whole programme against its goals and cost.
Who performs performance audits in India?
For government programmes, the CAG. In companies, internal audit or an outside firm can run value-for-money reviews on request of the board.
Can small companies use it?
Yes, on a specific project or contract. Keep the scope to one clear question.
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