Question

Section 83(3) of the Public Financial Management Act, 2016, Act 921 states that the Internal Auditor of a covered entity shall provide assurance on the efficiency, effectiveness and economy in the administration of the programmes and operations of the covered entity. The following information was extracted from a covered entity for the month of December, 2017: a) Machine Capacity – Monthly Output of 10,000 units b) Maximum Market Demand for the month 6,000 units c) Actual Production for the month 8,000 units d) 1 (one) unit of output requires: 2 units of input e) Standard cost of 1 unit of input GH¢ 3 f) Actual material input for the month was 15,000 units GH¢ 42,000 The covered entity uses Just in Time stock inventory management Required a) Explain the terms: efficiency, effectiveness and economy. b) Prepare an appraisal and report on value for money on public expenditure of the covered entity for the month of January, 2017.

Answer 1

In term of the question and PFMA, 2016; the terms can be briefed as follows:

Efficiency: It is the level of how the company is able to complete their task in a leat amount of time and resources.

Effectiveness: It is whether the company and its management is able to complete the work right or as required.

Economy: It is the present condition of the market with respect to the product we manufacture.

Appraisal Report

Particulars	Standard/Demand	Actual	Remarks
Units Produced	6000	8000	Management is ineffective in completing task as required. It required to produce only 6000 units since it is using JIT but ended up producing 2000 units more
Raw Material Units	16000	15000	Since company produced 8000 units, it would have required 8000 x 2 = 16000 units as per the standard. But the management worked effeciently and ended up producing 8000 units in only 15000 units of raw material.
RM purchase price	GH¢ 3 f	GH¢ 2.80 f	Company management must have negotiated effeciently to procure RM at 0.20 less price than standard set
Demand	10000	8000	Though machine is able to produce 10000 units but due to sluggish economy is appears that they have demand of only 6000 units.