(a) Outsourcing internal audit
Advantages of outsourcing internal audit
Staff recruitment
There will be no need to recruit staff for the internal audit department; the outsourcing company will provide all staff and ensure staff are of the appropriate quality.
Skills
The outsourcing company will have a large pool of staff available to provide the internal audit service. This will provide access to specialist skills that the company may not be able to afford if the internal audit department was run internally.
Set up time
The department can be set up in a few weeks rather than taking months to advertise and recruit appropriate staff.
Costs
Costs for the service will be agreed in advance. This makes budgeting easier for the recipient company as the cost and standard of service expected are fixed.
Flexibility (staffing arrangements)
Staff can be hired to suit the workloads and requirements of the recipient company rather than full-time staff being idle for some parts of the year.
Disadvantages of outsourcing internal audit
Staff turnover
The internal audit staff allocated to one company may change frequently; this means that company systems may not always be fully understood, decreasing the quality of the service provided.
External auditors
Where external auditors provide the internal audit service there may be a conflict of interest (self-review threat), where internal audit work is then relied upon by external auditors.
Cost
The cost of the outsourced service may be too high for the company, which means that an internal audit department is not established at all. There may be an assumption that internal provision would be even more expensive.
Confidentiality
Knowledge of company systems and confidential data will be available to a third party. Although the service agreement should provide confidentiality clauses, this may not stop breaches of confidentiality e.g. individuals selling data fraudulently.
Control
Where internal audit is provided in-house, the company will have more control over the activities of the department; there is less need to discuss work patterns or suggest areas of work to the internal audit department.
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