The need for performance auditing in the public sector and the best-practice frontier

Abstract

The article is organized as follows. In Section 2 the arguments for performance auditing in the public sector are reviewed along the lines of the public-choice approach. An international comparison of the functions of supreme auditing institutions (Section 3) reveals that the BelgianRekenhof-Cour des Comptes lags behind, lacking a mandate for performance auditing. In Section 4 the notions of efficiency and effectiveness are clarified. Section S compares the concept of the best-practice frontier with a standard production function. In the public sector one is often confronted with a weak knowledge of the underlying technology. This poses problems of specification for a parametric estimation. Therefore a nonparametric frontier may be recommended. In Section 6 the Farrell method and the free disposal hull are presented. Moreover, when several inputs are transformed into a multiple output (instead of one single homogeneous output), data-envelopment analysis offers a solution (Section 7). These latter methods are also illustrated by an international empirical comparison of the efficiency of public enterprises: postal services in Section 6 and railway companies in Section 7. Some conclusions are reported in the final Section 8.