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Could you benefit from outsourcing or co-sourcing internal audit functions?
Up until the early 1990s, many companies used in-house resources for internal audit functions. However, over the years, dedicated in-house audit functions have progressively given way to varying forms of co-sourcing or outsourcing options.
This isn't a surprising shift. Augmenting or outsourcing is typically cost-effective and delivers improved outcomes.
Organisations now face a maze of regulatory pressures, including growing cyber risks and ESG compliance challenges. As the complexity of regulations and technology increase, so does the need for internal auditors with deep technical knowledge and specialised expertise.
Outsourcing or co-sourcing allows businesses to access specialised expertise and advanced technology that might be too expensive or complex to develop internally.
How does an external team add value to an internal audit?
Modern organisations rationalise resources and implement more dynamic risk environments. External specialists are better equipped for a fast-changing regulatory environment and heightened exposure to fraud.
Some of the key benefits of bringing in outside expertise includes:
- Scalable expertise in cybersecurity, ESG, and complex regulations, ensuring higher service levels
- Rapid deployment of audit programs using proven, standardised methodologies
- Enhanced independence and objectivity, critical for compliance in regulated sectors
- Transfer of knowledge to boost the skills of your in-house team
- Flexible cost structures for improved return on investment
- Access to advanced resources, such as AI-driven analytics, data tools, and automated workflows
2025 trends shaping internal audit
With escalating threats and tougher global data laws, audits must evaluate organisations’ cyber defences and incident response plans.
The demand for transparency from investors and regulators means outsourced auditors bring valuable frameworks and ESG reporting skills.
Artificial intelligence identifies new risks, automates control tests, and predicts where compliance gaps may appear.
Outsourced audit teams provide continuity and adaptability for dispersed workforces.
Making the right choice: Co-sourcing vs outsourcing internal audit
- Outsourcing works best for organisations needing immediate access to specialist skills, rapid deployment, or full independence.
- Co-sourcing benefits those with internal teams looking to increase capacity or handle busy periods.
- Both approaches offer:
- Flexible staffing for custom projects
- Lower hiring and training expenses
- Access to the latest audit technologies and practices
- Objective oversight and stronger governance
- Both approaches offer:
It is important to carefully assess your organisation's specific needs and resources before choosing between outsourcing and co-sourcing. Engaging in thorough planning and ongoing evaluation will ensure the chosen approach delivers lasting value and supports long-term objectives.
Outsourcing is an attractive option for organisations that:
- Need to quickly establish an internal audit function
- Struggle to maintain quality internally, especially in light of an ever-changing regulatory environment and regulatory compliance.
- Do not want to invest in appropriate levels of audit talent internally
You can choose to access significantly greater skills externally. Plus, you can shrink or expand audit activities to meet the ongoing demands of their business.
A co-sourcing option will instead supplement your internal audit team. It lets you:
- Turn audit work on or off periodically in response to more immediate priorities. Examples of this include plant closings, staff holidays, year-end reporting, annual planning and budgeting, etc.
For some organisations this is a more practical option. For example, The City of Sydney engaged RSM to deliver specific areas of its IT audits over several years.
What to consider before outsourcing or co-sourcing
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 that can significantly benefit senior management.
- 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
Governance, risk and quality considerations
When implementing a co-sourcing model for internal audits, prioritise governance and risk management to ensure a successful partnership.
Your governance structure should outline roles, responsibilities, and reporting lines to uphold independence and objectivity in the audit process. Additionally, be vigilant about potential risks associated with data security and confidentiality.
When considering either outsourcing or co-sourcing, it’s crucial to engage stakeholders early in the decision-making process. Open communication ensures clarity around expectations, roles, and desired outcomes, which helps build trust and fosters a collaborative environment. Additionally, establishing clear performance metrics and feedback mechanisms from the outset can help track progress and facilitate continuous improvement.
Benefit from RSM's significant audit experience
RSM delivers customised internal audit solutions to a diverse portfolio of clients. Here are some examples of cases where RSM has stepped in to deliver greater value:
A US-based investors bank faced growing concerns over the inefficiency and unresponsiveness of its internal audit department. Complaints highlighted declining value relative to the bank’s investment, prompting the need for a better solution. Following a comprehensive risk assessment, the bank decided to outsource its internal audit function to RSM.
This move resulted in a significantly lower annual fee compared to the previous in-house audit payroll. Beyond cost savings, RSM:
- Revamped the bank’s credit processes,
- Updated relevant policies and procedures,
- Played an instrumental role in integrating the operations and control structures from nearly 10 acquired institutions.
- We also unified the bank's internal audit, enterprise risk management, Sarbanes-Oxley (SOX), and fiduciary processes into a seamless workflow. We achieved this by working closely with bank management and building a strong relationship with the audit committee.
Our involvement led to marked improvements in audit quality and operational efficiency. The bank’s assets grew from $6bn to over $15bn in two years. The enhanced audit framework strengthened the bank’s compliance and governance structures and laid the foundation for continued growth. The bank also benefited from RSM’s positive relationship with regulators, due to our independence.
Closer to home, our experience includes supporting ASX-listed companies, local councils, and heavily regulated organisations spanning multiple sectors throughout Australia.
- An ASX-listed financial institution renewing its outsourced audit partnership after seeing improved reports and stakeholder communication.
- A major council co-sourcing to flexibly align audit resources with its operational needs.
- A number of key mutual organisations opting for fully outsourced IA functions to better meet the broad range of APRA-related compliance requirements
Improve your next internal audit with RSM
Looking ahead, as regulatory landscapes evolve and business priorities shift, the benefits of outsourcing or co-sourcing will grow. Harnessing external expertise and technologies enhances audit quality and supports a culture of continuous improvement. It also empowers organisations to anticipate emerging risks and proactively address stakeholder expectations.
Those who adapt will be well-positioned to thrive in an environment defined by rapid change and heightened scrutiny. For organisations aiming to remain agile and competitive, these benefits may be too large to ignore.
FOR MORE INFORMATION
If you would like to augment your next internal audit, reach out to your local RSM adviser.
