Internal Auditor Independence
One question we always ask in our seminars is whether you consider your internal audit department to be "independent". Usually the majority of attendees answer "yes", however, after our discussion, many change their minds. Indeed, there are fundamental factors that go into making a quick decision on this question such as positioning of the internal audit department in the organization and reporting lines (e.g. reporting directly to the audit committee). However consider the following:
- Who pays the salaries of internal auditors?
- Are internal auditors eligible for options or stock based compensation at a certain level?
- Does the company promote out of the internal department?
- In today's economic environment, are auditors willing to jeopardize their jobs?
Independence a lot of times really comes down to the integrity and fortitude of the internal auditor. Will an auditor put his or her job on the line to do the right thing? When an company promotes or places out of the internal audit department, will an auditor who wants a job in the company really hold their ground? I am not talking about simple internal control findings, but material findings that could really hurt the company. Think about your staff.
Outsourcing and Co-Sourcing Internal Audit
Does outsourcing or co-sourcing internal audit pay dividends to a company? At Pertrolance, we believe that outsourcing is not a viable option when it comes to internal audit. Co-sourcing for certain niche audits such as IT and employee benefits can work as long as the provider teams with in-house staff. We say this for a number of reasons:
- The provider may know an industry or process but they do not know your company. To be effective, an auditor needs to see the big picture, have contacts throughout the company, and have built rapport with process owners. It is not realistic that an outside provider can do this, there is not time.
- Outside providers are driven by revenue. Most will not jeopardize the revenue to stand up to the decision makers who hire and pay them.
- External providers are significantly more expensive (think hourly rate and travel costs)
- External resources are usually not consistent, in professional service firms, staff is rotated on and off jobs. Unless, your company can guarantee work for a long period of time, you will get whoever is unassigned.
The list goes on... At Pertrolance, we believe that the best model is maintaining an in-house internal audit department. Pertrolance helps train internal audit departments and provides them with the tools they need to succeed.