Internal auditing: in-house, co-sourced, or outsourced? : a study

Abstract

PURPOSE: This study seeks to understand the continuously changing role of the Internal Audit Function within Maltese companies. Furthermore, it aims to determine which factors are taken into consideration when deciding whether to have an in-house, co-sourced, or outsourced function by looking at the positives and negatives of these sourcing arrangements. Finally, through the findings obtained from the research, recommendations are given to companies prospecting to employ an internal audit function within their organizational structure. DESIGN: Given the exploratory nature of the study, a qualitative approach was deemed to be the most appropriate to address the research questions. A total of fourteen interviews were carried out with Maltese companies that have an internal audit function and also with companies providing internal audit services themselves. FINDINGS: The role of an internal auditor has changed significantly from the past, and nowadays, rather than as a policing role, an internal audit function is seen as a value adding activity achieved through both assurance and consultancy services. Additionally, even though that co-sourcing is seen as the superior sourcing arrangement in many cases due to its ability to transfer knowledge to internal employees, there is still a reluctance to adopt it, and the case in Malta is that the more established companies would go for in-house, while the newly incorporated companies would adopt an outsourced function. CONCLUSION: Given that the role of an internal auditor is now delving into other areas, it is of utmost importance to still uphold independence because if this is shattered, the work performed will be ineffective. Furthermore, there is not one sourcing arrangement that is best fit for every scenario and a company needs to evaluate which one will add the most value. VALUE: This study can be of aid to those companies which are deciding on whether to establish an internal audit function within their structure and also to those companies that want to change the way that internal audit is being carried out.