Outsourcing Internal Audit vs. in-house or hybrid approach?
Newly listed companies must consider whether outsourcing internal audit functions is preferable to building up their own in-house capabilities.Post IPO companies are wary of the challenges that comes with creating an in-house internal audit function, ensuring its independence in both fact and appearance. Since these organisations did not have an internal audit function prior to the listing, they do not know how internal audit can add value to the organisation as well as how it fits into the corporate culture.
Both the external and internal context are key
First, organisations should evaluate their external circumstances such as: competition, regulatory requirements, industry dynamics, etc. Second, they should look at their corporate strategy, stakeholder expectations, size and complexity of their operations.
These two parameters should be considered and weighted against the advantages of the various internal audit arrangements listed below.
Advantages of an outsourced internal audit function:
- Staffing issues become a thing of the past
- Greater flexibility to meet management’ ad-hoc special audit requests
- More emphasise can be placed on annual risk assessment, audit planning and report review
- Easier access to specialised audit expertise in niche domains such as: capital project audits, cyber security audits, etc.
Advantages of an in-house internal audit function:
- Possibility to use Internal audit as a training ground for future executives
- Internal controls knowledge transfer once IA staff moves into other functional areas
- Enhanced effectiveness and efficiency of core/career auditor staff due to intimate knowledge of the organisation’s policies, procedures and culture
With the hybrid approach, the IA department is fundamentally maintained in-house with certain specialised audit experts hired as consultants to supplement the internal capabilities.
Advantages of a hybrid appproach:
- Temporary staff augmentation due to excess work or staffing shortages
- Access to very specialised expertise for one off audit mandates like: construction auditing, corporate strategy audits, corporate culture reviews, etc.
- In-house audit team gain exposure to subject matter experts in niche internal audit areas
How would you decide on an outsourced, in-house or hybrid internal audit strategy?
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