Postaudit of Investment Projects:
After an investment project has been approved and implemented, a postaudit should be conducted. A postaudit involves checking whether or not expected results are actually realized.
This is a key part of the capital budgeting process. It helps to keep managers honest in their investment proposals. Any tendency to inflate the benefits or downplay the costs in a proposal should become evident after a few post audits have been conducted. The postaudit also provides an opportunity to reinforce and possibly expand successful projects and to cut losses on floundering projects.
The same technique should be used in the postaudit as was used in the original approval process. That is, if a project was approved on the basis of a net present value analysis, than same procedure should be used in performing the postaudit. However, the data used in the postaudit analysis should be actual observed data rather than estimated data. This affords management with an opportunity to make a side-by-side comparison to see how well the project has worked out. It also helps assure that estimated date received on future proposals will be carefully prepared, since the persons submitting the data will know that their estimates will be given careful security in the postaudit process. Actual result that are far out of line with original estimates should be carefully reviewed.