Matching the Model to the Right Circumstances
Outsourcing based on reducing costs and inputs can make a tempting case for those on tight budgets, whether private or public sector, particularly in the current climate. It is important in such circumstances for an organization to think rationally about what it is seeking to achieve by outsourcing internal audit. Reducing costs can be achieved easily in the short term by reducing employees and/or their remuneration. Outsourcing can also help to reduce future pension costs. If the organization needs to pay lip service to an internal audit function only in order to keep its regulator or external stakeholders happy, then outsourcing based purely on lowest cost, regardless of quality, will achieve that objective.
If the existing inhouse service has come in for criticism and outsourcing is seen as the means to raise the internal audit bar, then cost becomes secondary to a visible improvement in quality of service. Here the change can be cost-neutral or even lead to a higher cost, but the decision to outsource will need to be based on the achievement of an expected standard of performance that is measurable and demonstrably better than the existing service, with outcome and output rather than input as the key drivers.
Getting the basket of performance measures right will be the key for most organizations. Defining an effective internal audit function is not as straightforward as at first it might seem. Describing performance in a rigid or mechanical way, such as an overly systematic approach through ISO standards and the like, can lead to a sterile audit service that fails to pick up the issues of most significance and risk to the organization. What use is an internal audit that routinely checks and reports on standard activities but fails to notice the hurricane waiting to blow the organization away?
- Page 4 of 7
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