3a 10 - managing outsourced audit activities
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Post on 13-Jan-2015
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DESCRIPTIONIn corporations, we see a number of out-sourced Internal Auditors partnering with the internal team in executing audit assignements . How do we leverage and monitor this activity to deliver high quality audits ?
- 1. Managing Outsourced Internal Audits
2. -Sourcing decisionInternal Audit & other Corporate Services Is there a difference between Outsourcing the other Corporate functions & Internal Audit? ie. Outsourcing, Accounting activity (Say Payroll, Bills processing etc.) (or) Fixed Deposit System (or) Share registry work etc. & Outsourcing the Internal Audit work? 3. IIAs Perspective What is so unique about IA that it should be exempt from the outsourcing decision? Internal Auditing is an unique effort that is aligned with the Management of the organisation and overall Corporate Governance Internal Auditors who are engaged full-time in an enterprise can assimilate the organisational culture and use this cultural awareness to understand risks and potential strategic outcomes. By being continually involved in business processes, they understand the interrelationships that can impact the control environment. 4. IIAs Perspective... They (IA) have a vested interest in the long run success of the business. Internally housed IA functions can draw staff expertise from the many facets of the Business to provide independent reviews of operations. IA is best performed by an independent entity that is an integral part of the organisation which functions under the policies established by senior management & the Board of directors , fully resourced & Professionally competent. 5. IIAs Perspective...At the Same time, Recent studies and new developments in services provided by external entities challenge management, audit committees and existing Internal Audit departments to carefully examine alternatives to the traditional internal auditing function. 6. IIAs Perspective...Fundamental Position .. that internal auditing is designed to serve the organisation. Therefore it is the responsibility of Management and the audit committee to provide effective oversight and management of the function - whether it is housed internally or provided by an outside service provider. 7. IIAs Principal InterestPromote IA activities that provide maximum overall effectiveness in achieving the organisations strategic objectives. 8. Situation Specific Some basic Questions Audit Management outsourcing or Audit Assignment outsourcing? Audit Skills outsourcing or Audit Manpower outsourcing? Outsourcing or Co-sourcing? Objective Cost Effectiveness or Quality Improvement? 9. Situation Specific... Some more basic Questions... Is there a full time internal Executive - Auditor in place or audits co-ordinated by a part time Executive? Is the entire work outsourced (or) part of it also done by internal team? What is the level of the Head of Audit / Audit Co-ordinator ? Is the audit responsibility lies with the Finance Head / Company Secretary etc ., who have other primary responsibilities? 10. Size of the organisation [Large Corporates] Can afford full time internal team Function would have been there for longer years Need for strengthening the internal function to serve the growing organisation better. (Internal Consultant role) Staff- Competent / trained Will posses experience / insight needed to deliver high quality service Best Practices for specific industries 11. Size of the organisation... [Medium / Small size Companies] Company cannot afford Senior level Audit professional full time Required skills may not be available internally Would be cost effective if outsourced Flexibility Easier to tailor audit services to meet clients needs Offer best potential for a long term relationship (Comparatively less expensive) 12. Takes many formsPurchase of specialised audit services Purchase of services in a specific geographic location Full outsourcing of IA department Outside providers entering into partnering agreements with internal auditing department in performing audit services. 13. Cost perspective of Internal Audit Trend.. Business Divisions / Profit centres looking at audit service Cost as an allocated overhead and from the perspective of whether the traffic can bear - Not a healthy sign Need for defining negotiables and non-negotiables to audit customers 14. Arguments in favour of outsourcing Allows management to focus on core competencies Economies of scale should result in cost savings for the same services, or improved services for the same costs. Flexibility in staffing leads to better resource allocation. Access to leading best practices / Outsiders can add fresh perspective A clear customer focus Better international and cultural coverage 15. Arguments in favour of outsourcing Better access to and use of specialised skills (Availability of varied Audit Skills - readily) Eg., Information systems audit skills Pairing in house auditors with service partners can broaden the auditors knowledge & skills Easier to remove an outsourced auditor than employees Will enable meet customers urgent & unexpected requirement 16. Arguments in favour of in house - sourcing Overtime, outsourcing providers may command an evergreater premium for their services An external provider wont know the business as well as an Internal Auditing Department A valuable management Training ground is lost. The outsourcing employees allegiance is to the outsourcing provider, not the client 17. Arguments in favour of in house - sourcing... Corporate Governance is a Management Function that cannot be outsourced - Corporate Governance - Internal Controls - Internal Audit Independence of the External Auditor may be impaired when the outsourcing provider is also the External Auditor (The SARBANES - OXLEY ACT of 2002) 18. Arguments in favour of in house - sourcing... Management and the Audit Committee lose an objective source of information (ie. IA) Institutional knowledge may be lost Structure may replace internal knowledge (eg: risk analysis approach - may not fit a particular organisational climate) New / first time service providers may not deliver what we want In house staff may resent the assignment of a service partner to a project that they believe they can perform.[ high profile project] 19. Successful Outsourcing PLANNING, MANAGEMENT , EXECUTION Criteria based selection of Service Providers Evaluation of Audit Team effectiveness / audit outcomes Feed back from Auditees / changes in IA system Audit learnings / Knowledge management effectiveness Confidentiality agreement Proper Vendor Selection & Evaluation System Have a Strategic Alliance ! 20. Successful Outsourcing Clarity in defining the Scope of audit Adequate pre-audit briefing. Usage of Tools Close monitoring of audit execution at the site Internal Audit Co-ordinators & their effective role Effective participation by the Audit Project Owner (IA Team) in closing meetings 21. Source Identification - A Practical Approach INTERNAL Guest Auditors Pool Specialised skills within the organisation pooled together Executives drawn from different disciplines of the organisation Proactive Executives keen to learn & develop themselves join the Internal Audit Team for a shorter duration as Guest Auditors 22. Working arrangement - Corporate Service Teams Internal Technology Cells Process Safety Cells Energy Conservation Teams TQM Centres Safety Management Cells BPR teams etc., 23. EXTERNAL Big Fours ( Force ? ) Medium Sized Audit firms ? Young skilled Professionals ( owning growing Internal Audit Firms ) who could directly involve in field work ? 24. Achieve effective co sourcing Combine expertise of a service partner with the cultural perspective of internal auditing Enhance value by expanding scope of audit coverage Gain access to specialized skills that internal auditing could not justify developing and maintainng in house 25. Subject matter experts required in many cases Insurance specialists for an Insurance Management Audit A fraud investigator / forensic expert for alleged fraud situation Civil Engineers while doing Building Contract Audits Security Experts when doing Data Centre Security Audit A Marketing Expert for conducting Marketing Department Audits etc., 26. Criteria for selection Projects & Skill set of service provider match Fitting into the organisations culture Single service provider may not have all the skills required to meet the diverse needs of Internal Audit. 27. Partnership with Audit Customers Involving audit customers in the selection process Understanding & communicating the deliverables expected 28. Effective Contracts Clearly communicating the Projects Scope, key deliverables & expected standards & performance. Reporting requirement (Report reinforces the outcomes of audit) Format and delivery date Billing format & frequency (Arrangement should be combination of price, deliverability, reliability & dependability) 29. Managing the Engagement (Some practical tips) Effective Project Management skills required for keeping the project on track. Responsibility & Accountability for Project Management should be clear (Audit Project Owner drives) Manage the first day of the project effectively (It can make or break it!) 30. Managing the Engagement (Some practical tips) Discuss Corporate Vision, Mission, Values & Principles Audit Philosophy / Policies / Procedures / Methodology & Performance Standards Reiterate scope of audit Review performance standards / project deliverables Introduce the service partner to the rest of the Audit Team 31. Managing the Engagement (Some practical tips) Familiarise them with Internal communication system / Business Applications, Audit Tools used & Audit work paper system in vogue etc. Above all, keep giving early feedback regarding the service partners performance (Deal with issues effectively) Terms of outsourcing should be clear to all 32. Managing the Engagement (Some practical tips) Scope should be clearly understood and rules for changing them should be spelt out. Weekly progress reports should include key per