Outsourcing internal audit as a means of optimising corporate costs

This article answers the following questions:

• What are outsourcing and co-sourcing in the context of internal audit?
• Why is it beneficial to engage a professional audit firm when undertaking tasks related to organisational governance?

In today’s rapidly evolving business environment, effective management of internal audit is a key method for directors and managers to maintain process quality and ensure the stable growth of their organisations. However, this is no easy task – each year, those responsible for internal audit face the challenge of developing a comprehensive action plan that responds to constantly shifting needs and business objectives. How best to approach this demanding task, which requires significant commitment and deep expertise in financial procedures?

For internal audit to deliver the intended outcomes and meet the growing expectations of investors and regulators, organisations choosing to undertake it must first and foremost ensure access to appropriate – and sufficient – resources that can be utilised effectively¹.

The body responsible for maintaining organisational governance should, for this purpose, analyse a range of factors, including in particular:

• the complexity of tasks,
• the level of staff experience,
• the current workload of available personnel. 

If the individual responsible for conducting the internal audit determines that the identified resources are insufficient to carry out the task, it may be necessary to seek support from an external audit firm offering either comprehensive or supplementary internal audit services – the latter involving the execution of only selected procedures.

What forms can internal audit outsourcing take?

External support for entities conducting internal audits can take various forms and may involve transferring differing levels of responsibility to external organisations. The most common types of internal audit services include:

• Full outsourcing – this involves entrusting all tasks related to the internal audit process to independent external providers. The activities performed by the audit firm under this arrangement encompass the entire scope of the internal audit function². However, it is important for the organisation’s representatives to remember that oversight and accountability for internal audit cannot be delegated externally.
• Co-sourcing (partial outsourcing) – this refers to the delegation of selected internal audit services to external providers³. Co-sourcing may involve support in implementing an already approved audit plan, carrying out specific audit assignments, or jointly executing the internal audit function. Through partial outsourcing, the internal audit department operating within the organisation continues to function under existing conditions, while receiving targeted support in specific areas. This allows the organisation to avoid maintaining a large, permanent team of auditors.
• Occasional staff support – this entails the temporary “secondment” of auditors from an external provider, enabling the organisation conducting the audit to strengthen or relieve its internal audit department during the execution of particular projects. This solution is especially useful in cases of unexpected staffing shortages or difficulties in meeting project deadlines. 

Benefits of outsourcing internal audit services to an external audit firm

Outsourcing all or part of the internal audit function to external providers can offer numerous benefits to organisations that choose this approach. The most significant advantages include:

• Cost optimisation – adopting a co-sourcing model and securing flexible support tailored to current needs enables organisations to avoid incurring fixed costs during periods of lower workload. This is particularly important for small and medium-sized enterprises. When using the services of an external provider, it is possible to establish a fixed budget that does not involve additional expenses related to maintaining a large internal audit team – such as training costs, infrastructure maintenance, or the purchase of specialised software.
• Time savings – the swift execution of necessary procedures is especially critical for tasks with tight deadlines or in response to unforeseen challenges. Delegating audit tasks to professionals not only eliminates the need to engage internal resources, but also allows organisations to avoid lengthy procedures and complex processes associated with conducting audits independently. Moreover, external specialists, thanks to their extensive experience, can identify irregularities more quickly and provide valuable recommendations to senior management and the board.
• Expert knowledge and competencies – access to experts who specialise in their respective fields and possess a broad range of experience is invaluable. An external provider can support the organisation through well-established procedures, specialised tools, and a proven working model, enabling tasks and processes that require long-term involvement from staff and leadership to be successfully transferred to professionals.

Delegating even part of the internal audit function typically yields tangible benefits for organisations – particularly when employing specialists for every audited area is either impractical or financially inefficient. An external, independent assessment of processes and organisational governance, conducted in accordance with recognised Standards, enables business owners to enhance risk management practices, improve internal controls, and manage organisational resources more effectively.

¹The Institute of Internal Auditors (2024), Global Internal Audit Standards, p. 73.

²The Institute of Internal Auditors (2024), Global Internal Audit Standards, p. 12.

³The Institute of Internal Auditors (2024), Global Internal Audit Standards, p. 12.