Internal audit: to outsource or not?
Introduction.
Internal audit work was traditionally done primarily within internal teams. The way that this used to be is now, and many organisations are outsourcing their internal audit outsourcing either entirely or partially.
To provide a comprehensive and efficient service, modern internal audit functions require an extensive range of skills.
The number of internal auditors in an organization is limited, but they can be expected to possess a growing range of specialist skills such as IT auditing, data mining and data analytics, and have in-depth understanding or familiarity with various regulatory regimes, depending on the sector and company. The recruitment, retention, and investment of specialists can be both expensive and challenging.
To avoid this problem, a lot of organizations opt to outsource the internal audit task to some extent.
In some cases, smaller organizations that are required to have internal audit outsourcing by regulations or funding agreements may opt for outsourcing the responsibility to an external provider instead of relying on their own in-house internal auditory section.
Different outsourcing options exist for internal audit work.
An external provider handles the entire task, which is typically a public accounting firm but not the same as the external auditor of the organization. This is known as audit outsourcing.
Internal audit services are not entirely procured from external sources, resulting in partial outsourcing. This is the case.
Co-sourcing involves sharing the workload of internal auditing with an external auditor, typically an accounting firm, and a team other than the external one.
Outsourcing this type can arise due to a temporary lack of internal audit staff, tight deadlines, special projects, difficulties in recruiting appropriately qualified internal auditors and the need for review of new regulations or compliance with emerging technologies. GDPR or Sarbanes-Oxley).
In some cases, smaller organizations that are required to have internal audit outsourcing by regulations or funding agreements may opt for outsourcing the responsibility to an external provider instead of relying on their own in-house internal auditory section.
In subcontracting, a third party may engage in some or all of the engagements for only limited time.
How does outsourcing internal audit compare to in-house internal auditory management?
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The benefits of outsourcing the internal audit function include:
The provision of adequate assurance to the audit committee and board of directors in key risk areas that require specialist technical expertise unavailable internally may necessitate some degree of outsourcing within a small internal audit section.
When it comes to fast-growing technologies, a small internal division may not have access or willingness to participate in the costly ongoing training required to remain knowledgeable of new advancements.
• Flexibility in staffing resources.
Access to specialist expertise, innovative audit outsourcing and technology, and the possibility of bench-marking could be advantages of co–sourcing for the organisation.
• The perception that the independence of the internal auditor from management would be strengthened.
• Depending upon the circumstances, it may provide greater value for money to outsource internal audits.
Outsourcing to a certain extent can help revive an already established internal audit function that has been stagnant. Why might this be so?
Outsourcing the internal audit outsourcing can lead to certain limitations, such as:
• The challenge of effectively managing contracts and service level agreements with an external service provider.
Internal audit outsourcing will undoubtedly result in a lack of internal knowledge and awareness about the organization’s culture.
What is the level of openness towards an outside source service provider among people?
• There’s the risk of confusion over responsibility and accountability.
A serious lack of cultural alignment between the organization and the provider of outsourced services can compromise the credibility of internal audit functions.
The organization’s flexibility is diminished by enlisting an external provider for internal audit services, which falls under a per-agreed timetable and schedule.
• It may prove to be costly and time-consuming if the board decides to bring the audit outsourced internal audit function back in house.
• Internal audit is often used as a training ground for internal promotions.
Depending upon the extent of outsourcing, the opportunities for this may disappear, or, at best, be significantly reduced if internal audit is outsourced.
Further points.
The responsibility for overseeing and outsourcing internal audit function cannot be outsourced, as stated by the Institute of Internal Auditors. Internal audit is ultimately overseen by the board, through the audit committee.
Outsourcing a significant portion of internal audit outsourcing is necessary for more formal documentation and channels for reporting and approval. This is due to this reason.
