As well as being cost-effective, augmenting or completely replacing the internal audit function can deliver improved outcomes
Up until the early 1990s it wasn’t unusual for companies to have internal audit functions fully catered for in- house. But in an attempt to rationalise resources and implement a more dynamic risk environment, dedicated in-house audit functions have progressively given way to varying forms of co-sourcing or outsourcing options.
Apart from reducing operating expenditure, many companies find that outsourcing or even co-sourcing internal audit expertise - to specialists better equipped to cater for a fast-changing regulatory environment and heightened exposure to fraud - leads to improved service levels, plus a better return on investment.
In addition to the knowledge transfer to help raise the competency of full-time employees, and a variable cost arrangement, other benefits of outsourcing or co-sourcing include access to significantly greater resources, immediate execution of work using pre-existing methodologies, plus greater objectivity and independence.
RSM takes over investors bank internal audit
As a case point, in response to complaints its internal audit department had become progressively inefficient and unresponsive five years ago, US-based Investors Bank eventually decided to outsource its internal audit function to RSM.
Having recognised that the bank was receiving deteriorating value, relative to its investment in this area, RSM was – following an extensive risk assessment - charged with taking over Investors’ internal audit function, with the first-year annual fee coming in substantially lower than the bank’s previous audit payroll.
Cost savings aside, RSM has also revamped credit processes, including updated policies and procedures, and contributed to the seamless assimilation of numerous acquisitions.
In addition to actively participating in the integration of disparate corporate cultures and control structures from nearly 10 institutions, the RSM team, in consultation with bank management, has successfully integrated the internal audit, enterprise risk management, Sarbanes-Oxley (SOX) and fiduciary processes.
Higher quality performance has been incredibly positive for the bank, with $6 billion in assets when Investors’ engaged RSM in 2011 exceeding $15 billion by late-2013.
RSM’s positive relationship with regulators has also been of significant benefit, with the team being regarded more favorably and independently than an in-house internal audit function.
Stronger audit framework lays foundation for growth
Having developed a strong relationship with the bank’s audit committee, RSM managed to implement a more robust internal audit framework for Investors which has laid a foundation for growth through a series of important projects and reviews.
Included amongst best practice and regulatory reviews, RSM has been asked to conduct include an annual quality assurance review of Investors’ mortgage electronic registry system (MERS), plus a comprehensive review of the bank’s entire credit processes.
The RSM team was also charged with integrating Investors’ internal audit, enterprise risk management, SOX and fiduciary requirements into one seamless process, which has significantly increased the efficiency of the bank’s operations.
Outsourcing and co-sourcing are attractive options
Closer to home, due to improved reporting, readability and engagement with management, an ASX-listed financial company recently outsourced its internal audit function to RSM for another 12 months, following an initial six month trial. RSM also conducts outsourced internal audit for several Commonwealth and State Government agencies, predominantly within the transport, health, regulatory and energy sectors.
Outsourcing is an attractive option for organisations that either need to quickly establish an internal audit function or struggle to maintain a high quality function internally, especially in light of an ever changing regulatory environment. Organisations that don’t want to invest in appropriate levels of audit talent internally can choose to access significantly greater skills externally, while having the ability to shrink or expand their internal audit activities to meet the ongoing demands of their business.
However, for some organisations a co-sourcing option, which supplements their internal audit staff, is a more practical option. As a case in point, by choosing a co-sourcing option, The City of Sydney has engaged RSM to deliver specific areas of its internal audit function over several years.
A co-sourcing option also means an organisation can turn audit work on or off periodically in response to the immediate priorities confronting the business, like plant closings, staff holidays, year-end reporting, annual planning and budgeting.
Review outsourcing and co-sourcing options
By outsourcing or co-sourcing critical elements of an internal audit function, your organisation can not only reduce costs, but also free up capital and key staff to refocus on core competencies, while tapping into specific skill sets, best practices, industry and corporate audit knowledge.
Key elements to consider when assessing the potential benefits of either outsourcing or co-sourcing include:
- the value of greater staffing flexibility, especially as bespoke projects arise
- cost savings resulting from removing internal audit training and recruiting costs
- the value of highly skilled and experienced professionals and leading technology
- incremental value while holding down internal costs
- an independent overlay that external specialists bring to the audit table
- ongoing monitoring, compliance maintenance, and control transformation efforts to improve the business effectiveness of your internal audit function