Look to internal audit to enhance performance evaluation

Evaluation of institutional performance is of increasing importance to higher education institutions, and — or, it could be said, because — their constituents (e.g., donors, students/prospects) have also become more concerned with such assessments. Stakeholders, both internal and external, are increasingly relying on measurement of performance to make more informed decisions. To measure performance, institutions should begin where most organizations begin — by establishing and evaluating key performance indicators (KPIs) that facilitate assessment of performance toward achieving the organization’s mission and strategic objectives.

To properly evaluate your institution’s success in achieving its mission, you must be able to rely upon the integrity of key performance data that informs management decision-making. Internal audit (IA) can play a key role in providing comfort that all efforts related to your institutional performance evaluation process build a trustworthy foundation for decision-making and can also help your institution “raise its game” when targets are missed by understanding root causes and opportunities for improvement. IA can provide crucial assessments of the integrity and reliability of processes, practices and controls, and can be a partner in identifying opportunities to improve execution.
The performance evaluation process                                               
1.  Relevant metrics are established
In order to measure performance, “success” must be defined, beginning with leadership’s shared understanding of the mission and goals. Then, KPIs can be established to measure progress toward achieving these targets. The best KPIs are those that measure outcomes, not outputs or routine functions; assess organizational performance and progress toward mission; are not unduly complex to understand; and do not require significant effort to aggregate/calculate.

2.  Data is collected and inventoried
With KPIs established, determination is made regarding how to best collect the necessary measurement data. Responsibility needs to be assigned (e.g., institutional research, administration, compliance or IT) for gathering data for both institutional reporting (e.g., for compliance) and performance evaluation.

A data and reporting governance committee may be tasked with enhancing collaboration, and oversight of performance evaluation and reporting activities. The committee may be responsible for establishing common definitions for key reporting terms and metrics, as well as for monitoring the “inventory” of key metrics and reports, including the data sources, risks and challenges associated with each. This committee can comprise key stakeholders and representatives from relevant departments, such as the executive office, finance, academic affairs, admissions, financial aid and development. By overseeing both internal and external reporting governance, the committee sets the tone for performance measurement, data gathering and reporting efforts.

3.  Reporting tools are created
After appropriate metrics and data-gathering procedures are in place, a performance and reporting tool can be developed. The tool can range from a manually maintained spreadsheet to a customized Web-based dashboard that integrates with the institution’s primary systems for real-time access to KPIs. Design decisions need to address management’s desire for real-time data vs. periodic updates, the volume and complexity of agreed-upon KPIs, and management’s desired investment in establishing these reporting tools. Additionally, thresholds need to be defined to indicate when performance is either exceeding or missing expectations. Dashboards can be established at different organizational levels (e.g., departmental management, senior management and board level). The real purpose of such tools is not to inform, but to allow decisions to be made and actions to be taken in response to performance that is either better or worse than planned.

IA can enhance your performance evaluation process While higher education institutions are increasingly focused on establishing metrics and measures to evaluate their performance, these activities aren’t useful if management cannot rely on the accuracy, integrity and timeliness of reported data. Gaps in performance evaluation processes and controls may result in decisions based on inaccurate data. IA can play an invaluable role in identifying and resolving any such gaps, thereby providing comfort to management that KPIs serve as a solid foundation for institutional evaluation and decision-making.

Identify risks to achieving institutional performance measures — IA should ensure that its annual risk assessment process includes an evaluation of potential barriers to your institution achieving key performance metrics. IA should have a thorough understanding of the institution’s KPIs, as well as the key drivers for these measures; the risk assessment process should evaluate potential threats to accomplishing these goals. The results of the risk assessment should drive the annual internal audit plan, which outlines the functions that IA will review.

Monitor data-gathering and reporting practices — Even if management has identified metrics that truly measure your institution’s achievement of its goals and mission, the results are meaningful only if the data used to derive these metrics has integrity. The data used by management to evaluate institutional performance may be touched by numerous individuals and systems along the way, with calculations and other manipulations that can increase the risk of inaccuracy, both intentional and unintentional. IA can serve as a powerful resource in assessing every stage in the data-gathering and reporting process. In this arena, IA can, for example, assist with creating an inventory of all key metrics and the data sources for each, and evaluate risks, as well as key process and system controls that promote data integrity. In addition, IA can perform a post-implementation review of dashboard reporting tools in order to verify that they are properly compiling and summarizing key metrics for management review.

Identify opportunities to improve institutional performance — As a proactive measure, IA can perform operational audits of the business functions that drive your institution’s KPIs in order to identify and mitigate risks to achieving key metrics. Alternatively, if your institution’s performance against key metrics does not meet management’s targets and expectations, IA can assist in the identification of improvements to these business functions that can help remediate deficiencies in key indicators. Finally, IA can assist management in determining if any negative indicators are a result of poor performance, or if expectations (and hence, KPIs) need to be adjusted.

IA assurance can facilitate mission focus IA can assure management that the processes, practices and controls related to your organization’s institutional performance evaluation activities are operating in accordance with expectations, allowing management to focus their efforts on continuous improvement toward achieving your institution’s mission.

Back to The state of higher education in 2015