The Effect of Contracting-Out Audits on Resource Allocation and Efficiency in Public Sector Audits

46 Pages Posted: 16 Jul 2001

See all articles by Kar-Ming Chong

Kar-Ming Chong

UNSW Australia Business School, School of Accounting

Colin Dolley

Edith Cowan University

Keith A. Houghton

Australian National University (ANU) - Faculty of Economics & Commerce; Australian National University (ANU) - Crawford School of Public Policy

Gary S. Monroe

University of New South Wales (UNSW) - Australian School of Business

Date Written: Undated

Abstract

Significant changes in public sector have impacted on the operations of government audit offices in several countries, notably, Australia, New Zealand, Canada, United Kingdom and the United States. Government audit offices are required to operate in a more contestable or market-like environment, where they are accountable for an efficient and effective provision of public sector audit. The purpose of this study is to compare the efficiency of in-house and contract-out arrangements to deliver financial audits in the public sector. This study examines the audit cost efficiency within the context of the current public sector arrangement at the state level in Western Australia (WA). The results for 178 public agencies in WA suggest that contract-out audits are more costly than in-house audits but the result is conditional on agency type. Specifically, for statutory authority audits, the costs of contract-out audits are, on average, significantly higher than in-house audits. For hospital audits, there is no significant difference in audit costs between contract-out and in-house arrangements. Sensitivity analyses reveal that the supervision costs incurred by the Auditor-General to monitor audit quality have a significant impact on the interpretation of the cost efficiency results.

Keywords: Cost efficiency; Public sector audits; In-house; Contract-out

JEL Classification: M49, L32

Suggested Citation

Chong, Kar-Ming and Dolley, Colin and Houghton, Keith A. and Monroe, Gary S., The Effect of Contracting-Out Audits on Resource Allocation and Efficiency in Public Sector Audits (Undated). Available at SSRN: https://ssrn.com/abstract=276698 or http://dx.doi.org/10.2139/ssrn.276698

Kar-Ming Chong (Contact Author)

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia
+61-2-9385-5916 (Phone)
+61-2-9385-5925 (Fax)

Colin Dolley

Edith Cowan University ( email )

Pearson St.
Churchlands 6018 WA, Victoria
Australia
+61 8 9273 8438 (Phone)
+61 8 9273 8121 (Fax)

Keith A. Houghton

Australian National University (ANU) - Faculty of Economics & Commerce ( email )

Canberra, Australian Capital Territory 2601
Australia

Australian National University (ANU) - Crawford School of Public Policy

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

Gary S. Monroe

University of New South Wales (UNSW) - Australian School of Business ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia
+61293856443 (Phone)

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