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PERFORMANCE AUDIT OF PUBLIC SECTOR WITH REFERENCE TO MEASURING EFFICIENCY IN THE EDUCATIONAL SYSTEM REVIZIJA UČINKOVITOSTI JAVNOG SEKTORA S POSEBNIM OSVRTOM NA MJERENJE UČINKOVITOSTI U OBRAZOVNOM SUSTAVU

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Performance audit contributes to the strengthening of the legality, trust and efficiency of institutions in the public sector, and its main objective is to provide a better quality public service through better spending of public money and a higher
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  1 Vukovic Dijana, Ph.D Faculty of Economics University of Bihać   Pape Ivana Pavla II/2, 77 000 Bihać, Bosnia and Herzegovina  Tel/fax: +387 37 222 513 dijana.vukovic@unbi.ba   Adis Muharemović, MSc  Faculty of Economics University of Bihać   Pape Ivana Pavla II/2, 77 000 Bihać, Bosnia and Herzegovina  Tel/fax: +387 37 222 513 amuharemovic@bih.net.ba   PERFORMANCE AUDIT OF PUBLIC SECTOR WITH REFERENCE TO MEASURING EFFICIENCY IN THE EDUCATIONAL SYSTEM   REVIZIJA UČINKOVITOSTI JAVNOG SEKTORA S POSEBNIM OSVRTOM NA MJERENJE UČINKOVITOSTI U OBRAZOVNOM SUSTAVU ABSTRACT Performance audit contributes to the strengthening of the legality, trust and efficiency of institutions in the  public sector, and its main objective is to provide a better quality public service through better spending of  public money and a higher level of public accountability. As the education system is one of the most important steps in achieving the best possible quality of the public sector and general social and economic well-being, the purpose of this paper is to demonstrate the impact of the performance audit on the increase of the efficiency and effectiveness of the education system through the activities of top audit institutions. The aim of this paper is to construct a model for measurement of effectiveness, and through a comparative analysis of reports of conducted performance audits in the field of education to determine the limits of achieving maximum efficiency.  Key words: efficiency, education system, performance audit, public sector,  JEL: H52,H83, M42, I121 SAŽETAK     Revizija učinkovitosti doprinosi jačanju zakonitosti, povjerenja i učinkovitosti institucija u javnom sektoru i njen osnovni cilj je kvalitetnija javna usluga kroz kvalitetnije trošenje javnog novca i veći stupanj javne odgovornosti. Kako je sustav obrazovanja jedan od najvažnijih koraka u postizanju što je moguće kvalitetnijeg javnog sektora i općeg društvenog i ekonoms kog blagostanja svrha ovog rada je prikazati utjecaj revizije učinkovitosti na povećanje djelotvornosti i učinkovitosti obrazovnog sustava kroz djelovanje vrhovnih revizijskih institucija. Cilj rada je konstruirati model za mjerenje učinkovitosti te kroz k  omparativnu analizu izvještaja provedenih revizija učinkovitosti iz oblasti obrazovanja utvrditi ograničenja  postizanja maksimalne učinkovitosti.    Ključne riječi: javni sektor, obrazovni sistem, revizija učinkovitosti, učinkovitost    JEL: H52,H83, M42, I121  2 1.   INTRODUCTION This paper focuses on performance audit in the educational system. Performance audit is a manner of controlling the operation of the public sector, and a way for interested parties to gain insights into the flow and results of different public subjects activities, while performance audit reports provide significant gains for the public sector as a whole, its administration and the general public, since they create a reliable basis both for the detection and prevention of irregular operations and for the adoption of corrective decisions going in the direction of increased efficiency and success. Performance audits also provide a significant contribution in the increased efficiency of educational institutions, spurring positive changes in their o  peration (Mamić Sačer et. Al, 2016, pp. 11 -28). Performance audits also greatly contribute to public accountability, and allow auditors to provide practical contributions to increased economical operation, efficiency and effectiveness of public institutions (Okanović & Redžepagić 2012, p. 47). The goal of performance audit is to assess whether the resources used represent the most economical usage of public funds, whether the use of available resources provides best and timely services, whether strategic goals are met, as well as whether there is any influence on the implementation of those goals. Education is an important activity which necessitates large financial funds. Worldwide, education expenses annually reach around 240 billion US$. The imbalance between the funds necessary for adequate development of education and insufficient current investments in education puts education into an unequal social and economic position compared with other activities. The financing of education is defined by the fact that education is considered part of public needs and, as such, part of social activities. Education financing system thus depends on two important pre-existing factors: the first one is the economic and political system of a given country, and the other the concept of financing of public expenditure, which then includes educational institutions. There are important differences in systems and models of education financing in individual countries. Education can be financed from State budgets (centralised system), or from the budgets of regional and local administrative units (decentralised system), or through a combination of the two systems. Education financing sources in Europe and the world are different. The main sources are taxes: income and profit taxes, social insurance taxes, salary taxes, property taxes, indirect taxes and customs duties (tariffs). Depending on the kind of school, interest and economic power, other sources can also appear: subsidies, donations and such, coming from foundations, parents, economic organisations, chambers, and individuals. 2.   LITERATURE REVIEW An important role of performance audits is to identify existing shortcomings and provide appropriate recommendations. The implementation of recommendations provided should lead to positive changes in the system as a whole, the creation of new value, and improvement of the functioning of the system or institutions, which is in turn reflected in improved economical operation, efficiency and effectiveness in resource usage (Vuković 2016, p. 3). Performance audit not only provides initiatives for improvement and increased efficiency, it also promotes transparency and accountability of operation both in the public sector and in the educational system (Ured za reviziju FBiH (FB&H Auditing Bureau) 2013, p. 1.). Educational institutions attempt to improve efficiency in the performance of their functions. In that sense, more and more attention is focused on providing higher-quality services, while simultaneously and permanently finding ways to cut costs. Thus, in the conditions of limited resources, with an obvious gap between available means and needs that should be met; and particularly in the conditions of large reforms in many parts of the public sector, performance audit takes on particular significance. In developed societies, the main development factors are science and education. This is because education and care have  3 significant impact on the future quality of human capital, on which successful usage of available natural resources, technology and financial capital of a country depends. This is why, today, in highly developed countries, the greatest treasure lies in their population. The quick growth of certain small, natural-resource-poor countries, such as Ireland and Finland, can be explained by their development policies, which promoted education and science as their national priorities. The awareness of high profit of education investments is generally accepted everywhere in the world today, as can be seen from the percentages of gross national product provided by different governments for formal education in their respective countries (as a rule, ranging from 5% to 6% of GDP), as well as significant non-budgetary funds coming from enterprises and other organisations, also directed towards formal and informal education of their members, and from individuals towards their own personal growth (Government of the Republic of Croatia, 2002, p. 10). It is the attitude of developed European countries that “Europe must invest in education in order to increase the general level of employees’ skills and working population, both during basic education and by sup  porting the acquisition of knew skills and competences throughout their lifetime” (European Commission, 1996, p. 55).   The concept of the balanced scorecard (BSC) was first introduced by Robert S. Kaplan and David P. Norton (1992) in their now widely cited  Harvard     Business Review article, “The Balanced  Scorecard  —  Measures that Drive Performance.” By measuring organizational performance in the BSC perspectives, it complements traditional methods with measures for customers, internal processes, innovations and improvement processes, which are in turn linked to the overall institutions’ strategic vision. Azizi et al. (2012) in a detailed review studied on which perspectives in the balanced scorecard are appropriate for the universities. They conducted an extensive survey on different perspectives adopted by a number of universities and higher education institutes around the world. They indicated that universities and higher education institutions as non-profit organizations are able to apply four main perspectives of BSC by replacing customer perspective with financial perspective at top of scorecard (Al Hosaini & Sofian, 2015, p. 26). 3.   MODEL OF MEASUREMENT OF EFFICIENCY IN THE EDUCATIONAL SYSTEM Models based on historical, financial indicators are not sufficient for measuring the efficiency of an educational system. What is needed is the balance in the results measuring system between financial indicators, end-users satisfaction, internal processes, and increased efficiency. An analysis using financial indicators is undoubtedly more than welcome, but it cannot represent end-user satisfaction, innovation, knowledge and skills of the employees. A model that it is possible to apply in the measurement of efficiency in service providing issues, which gathers together all the elements necessary for the evaluation of performance is known under the name of  Balanced Scorecard   (BSC). This model is also known as the Efficiency and Business Excellence Model, and is a popular tool in the private sector (most often used by strategic management). In this part of the paper, the possibility of the application of the BSC model in the public sector shall be analysed, i.e., the specific model will be used as a metric tool for the assessment of efficiency in service-providing public companies.   Balanced Scorecard (BSC) is a management metric methodology, also known as a “balanced targets map”. The authors of the concept, Norton and Kaplan (1996, p. 9) define the BSC model as a “method of translating the mis sion and strategy into clear, all-encompassing, comprehensive and carefully selected group of performance metrics, ensuring the construction of the system for strategic measurements and managing system.” BSC is aimed at companies of all sizes and activities, intending to align strategic and operative goals and follow the operation through both  4 financial and non-financial indicators. Balanced Scorecard is widely present in the world due to its success in the implementation of a given organisation’s pre -defined strategy and improved efficiency, so it provides good chances of success. It was created as a performance metric for companies, looking at overall performance from several perspectives. The performance of a given organisation, its goals and their metrics are studied from four perspectives   (Kaplan & Norton 1996, p. 9):  1.   „The financial perspective considers the traditional financial concepts, including  profitability, income growth, expenditure control etc.  2.   The customer perspective pertains to how customers see the organisation, so the organisation should aim towards providing quality products and services, efficient delivery and customer satisfaction.  3.    Internal processes perspective pertains to processes that should be focused on in order to improve organisation: productivity, turnover cycles, and expenses.   4.    Learning and growth perspective pertains to all efforts that an organisation should make to maintain its value-creation ability, personnel skills, information systems quality, organisational balance effects, and the ability to reach the set goals. Financial success is undoubtedly still considered the most important, but it is complemented by the perspective of the customers, internal processes and learning and growth, which should allow the understanding of the basic factors leading to the achievement of financial success for a given company. Within each of the perspectives within the BSC model, it is necessary to identify key targets and appropriate indicators of the achievement of these targets, as well as to constitute mutual relationships between targets and indicators by identifying causal relationships. BSC creators do not insist on the construction of a four-perspective model, but rather allow the organisations to modify the basic model. Depending on the needs of the management, the model is adapted to a given organisation. Because of this, in practice, one can often find model implementation using three, four, or even five perspectives, depending on what a given company considers as key segments of its operation. Today, BSC is implemented in many companies, organisations and government institutions. The usefulness of BSC implementation has been recognised by many leading world organisations, both for profit (KPMG), public (Government services in Canada) and student organisations (AIESEC) (Jovanović & Pravdić 2010, p. 37).   3.1.   Implementation of the BSC Model in Educational Institutions The value of the BSC model is reflected in its easy application with different forms of organisation, including the public sector and non-  profit organisations (Pervan & Soče 2010, p. 18). Depending on its size and purpose, an individual organisation can modify the basic BSC model according to its needs and aligns it with what is considered the key areas of the organisation’s operations. BSC was srcinally intended for for-profit organisations, but it has been successfully modified as a system for public and non-profit organisations. It has also been widely applied in public sector organisations such as the Town of Charlotte (USA), USA Department of Defense, USA Department of Energy, Cockburn and Melville (Australia), Singapore district, U.S. National Reconnaissance Office (NRO) with its three programmes (Air Force, Central Intelligence Agency & Navy), and those are just some of the public sector examples of successful usage of BSC in the realisation of the organisations’ mission (Wendy 2001, p. 38). Thanks to the connection between success indicators and key business processes, the BSC model allows to identify and measure performance. In order to implement the BSC model, no expensive investments in technology and other resources are necessary, because the indicators calculation is based on data already available within the company itself, and it includes the people who already have the information needed. The  5 financial perspective is a necessary precondition for an efficient educational system, but it is not sufficient, because, without additional knowledge, it can hardly be effective. It is exactly this shortcoming of the financial analysis that gave birth to the prevalence of the BSC model, because it offers, together with the financial analysis, an analysis of non-financial indicators as well. The synthesis of both analyses is a good precondition for the achievement of efficient and successful operation, as well as the reaching of strategic goals (Bostan 2012, pp. 6465-6470). According to Bostan, the specific mission of public sector organisations demands an appropriate modification of the BSC architecture. In the educational system, it is possible to identify two high goals the realisation of which leads towards the mission of educational institutions: the creation of a quality educational system, accompanied by continued financial viability.   The use of indicators of performance as a way of managing and improving performance in education is now so widespread across schools and universities that it is difficult to imagine educational life without them. Educational institutions operate in both the private sector and the public sector. The main objective is to ensure the continuity of business as determined in accordance with the basic aim scheduled (Yüksel & Coşkun 2013, pp. 2450 -2459). For managers of educational institutions in the public sector who aim to achieve the goals and objectives determined by the public educational institutions, non-financial factors such as satisfaction of the customer (student) and other stakeholders, and service quality are more important than the financial objectives. However, the financial aspect of business continuity is also important in the evaluation of the performance of public enterprises (Coskun& Bayyurt 2008, pp. 79-87). Performance measurement system in educational institutions can either be based on financial or non-financial performance. Financial statements analysis and standard cost and budget analysis are examples of financial performance measurement. Managers of the educational institutions can also implement non-financial approaches to performance measurement, such as measuring the service quality,  productivity, efficiency and effectiveness, and customer (student) satisfaction (Yüksel & Coşkun 2013, p. 2450-2459).
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