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Outsourcing of Internal Audit

Internal auditing has moved from "those who bayonet the wounded after the battle is over" to "those who can either prevent the battle, or during the battle, which can become an integral part of the company's competitive armory".

While the board is ultimately responsible for maintaining effective corporate governance and ensuring that the organization is "in control", the extent and complexity of today's business risks and related controls has led to a heightened expectation from Internal Audit by management.

Internal Audit must provide management with a dynamic, value-adding tool, which makes a positive contribution to the achievement of the organization's business bjectives. It must assist the board and management to discharge their corporate governance responsibilities by assisting with identifying and managing risks and providing:

• Objective evaluations of business risk
• Regular evaluations of the organization's system of control
• Effective reviews of operational and financial performance

The role of Internal Audit is to assist management in maximizing the opportunities and minimizing the threats to the organization. Internal audit must maximize the assurance provided to the Board, the Audit Committee and management, and contribute to the continuous improvement strategies of the organization.

With a changing and more cost competitive environment, it is essential that maximum value be obtained from the Internal Audit function. The Internal Audit function must now increasingly contribute to the achievement of overall corporate objectives while remaining an independent and valued voice helping the organization rationalize risk and reward.

Outsourcing Options

Outsourcing the internal audit function is becoming a strategic imperative. There are essentially two options: full or partial outsourcing.

Full outsourcing

Many organizations find that outsourcing the entire internal audit function is the best option, since this also helps organizations focus on their core competence. It may be practical for the organization to retain a resource in-house, the chief internal auditor, who can assess the ongoing needs of both the internal audit process and the organization itself. This individual has a key role to play in planning the allocation of internal audit resources and communicating with the Audit Committee and management.

Partial outsourcing

This approach, also known as co-sourcing, involves a balance between retaining an in-house team and full outsourcing. The in-house team has control of and responsibility for internal audit, and calls on external advisors for additional support and specialist skills when required.

Many organizations are actively outsourcing their internal audit function as a way of cutting costs, increasing efficiency, and responsiveness, and upgrading their in-house capabilities.

This approach involves an integrated formal partnership between the in-house internal audit function and the external advisors, with each party sharing and contributing complementary knowledge, skills and experiences.

Our Internal Audit approach is designed to address the same business concerns that management is required to deal with, and to provide assurance in the following key areas:

• Operational efficiencies and effectiveness, with an emphasis on those areas with the greatest risk exposure
• Compliance with regulatory requirements, approved policies and procedures and industry best practices
• Quality of management information

Our Internal audit methodology has an operational and business risk focus and allows for a flexible and high quality response to address Audit Committee and management concerns. The risk assessment process is fundamental to our Internal Audit approach, which requires business areas to become formally accountable for internal control assurance by conducting self-assessment of their control infrastructure. The Internal Audit thus becomes a key component of the client organization's approach to corporate governance and business risk management.

KPMG's Internal Audit Services include:

• Corporate Governance - Review and Assessment
• Outsourcing or Co-sourcing of Internal Audit
• K’SPRint (strategic review of internal audit departments)
• Establishing an Internal Audit Function
• Accounting procedures manual
• Reconciliation problem resolution

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