Executive Summary
-
The key consideration is whether it is better to outsource internal audit, insource to support an existing function, or leave the function inhouse.
-
Outsourcing is a valid option when cost or effectiveness is the single most important factor in considering the internal audit function.
-
If the key consideration is efficiency, outsourcing may not be the best option.
-
Outsourcing a small, existing internal audit function may be counterproductive.
-
Outsourcing either a new internal audit function or a weak medium-to-large inhouse audit function is often an effective solution.
-
Organizations should only consider outsourcing once they have evaluated the effectiveness of the existing inhouse function and have identified any improvements that they can implement. Only then can the merits of outsourcing be evaluated properly against those of retaining the inhouse function.
-
Outsourcing can provide benefits by bringing skills not available to an inhouse team, but it can also risk losing the internal knowledge of the organization.
-
A valid alternative for consideration is cosourcing (a partnership between inhouse and external provider), which may confer the advantages of outsourcing while keeping the effective parts of the inhouse function.
-
Outsourcing can be to a specialist internal audit provider, a major organization with an audit arm such as one of the “big four” accounting firms, a specialist financial and business services provider, or a consortium formed from several internal audit departments in similar businesses.
Introduction
Outsourcing the internal audit function is a major step and one that should not be taken for the wrong reasons. Wrong reasons include a personality clash between the chief internal auditor and the person taking the decision to outsource, and a decision based on the perceived ineffectiveness of an under-resourced inhouse audit team that would struggle to perform well even if the most outstanding employees in the organization were assigned to it.
When deciding to outsource internal audit, three options should automatically be evaluated before a decision is taken. First, is the inhouse function fit for purpose? Second, is outsourcing a value-adding solution? Third, is a better option to cosource1 where skills can be improved or cost savings made?
In some circumstances outsourcing can initially save costs and, in the long term, reduce the pension requirements of internal employees. Before taking such a step, the options must be weighed and a realistic evaluation of the consequences made. What may seem on paper a straightforward way of reducing internal audit costs and increasing the pool of expertise can have unexpected consequences if the starting position is not as the organization imagines it to be.
- Page 1 of 7
- Next section Case Study
www.qfinance.com