Contracting out a performance audit can be a strategic decision for government agencies or organizations seeking an independent evaluation of their programs, operations, or services. Whether you're outsourcing due to resource constraints or to gain external expertise, there are critical factors to consider to ensure the success of the audit.

Why Contract Out a Performance Audit?

Outsourcing a performance audit can provide several benefits, including:

Specialized Expertise: External auditors may bring specific knowledge or skills not available in-house.
Affordability: Contracting out an audit can be a cost-effective solution compared to maintaining in-house expertise.
Resource Management: Contracting allows organizations to address capacity issues without overburdening staff.

However, outsourcing also introduces challenges, such as the need for effective oversight and communication.

Key Considerations When Outsourcing

Before contracting out a performance audit, consider the following:

1. Defining the Scope of the Audit

Clearly outline the objectives, scope, and criteria of the audit. Key questions to address include:

What programs, activities, or functions will the audit cover?
What are the desired outcomes of the audit?
What is period of performance for the audit?

A well-defined scope ensures alignment between your organization’s expectations and the auditor’s work.

2. Selecting a Qualified Auditor

Look for auditors with the appropriate qualifications and experience, such as:

Demonstrated expertise in performance auditing. Very few public accounting firms have experience with performance auditing
Familiarity with the program area
Familiarity with Government Auditing Standards (Yellow Book)

Ask for references, review prior work, and evaluate their knowledge of your organization’s regulatory and operational environment.

3. Ensuring Independence and Objectivity

External auditors must be independent of your organization to avoid conflicts of interest. Verify that the contractor meets independence requirements and has no relationships that could compromise objectivity.

4. Budget and Contract Terms

Develop a detailed contract that includes:

The audit’s scope and deliverables
Deadlines and milestones

A transparent and thorough contract can prevent misunderstandings and manage expectations.

5. Oversight and Communication

Establish a project management plan to maintain oversight throughout the audit. Consider:

Assigning a point of contact within your organization
Scheduling regular progress meetings
Setting up a system for reviewing draft findings and reports

Effective communication ensures the audit stays on track and aligns with your goals.

6. Compliance with Standards

Ensure that the contracted auditors follow relevant auditing standards, such as:

The Government Auditing Standards (Yellow Book)

Compliance guarantees the audit’s credibility and reliability and ensures you won’t have any issues during your next peer review.

Common Pitfalls to Avoid

Insufficient Planning: A poorly defined scope can result in wasted time and resources.
Lack of Experience: Few accounting firms have experience with performance audits.
Lack of Oversight: Without proper communication, the audit may deviate from your organization’s priorities.

Contracting out a performance audit can provide valuable insights and improve organizational performance when done thoughtfully. By carefully defining the audit’s scope, selecting qualified auditors, and maintaining oversight, your organization can ensure that the audit achieves its objectives while upholding accountability and transparency.

What to Consider When Contracting Out a Yellow Book Performance Audit