To cosource or not to cosource
Fact or fiction? Seven cosourcing myths exposed
The most important thing the CEO can do is bring tone from the top support.
Summary: Ernst & Young recently commissioned Forbes Insights to conduct a survey about the evolving role of Internal Audit. In it, 77% of senior executives see cosourcing as a viable business option.
Another 73% would be willing to consider a cosourcing arrangement of the Internal Audit function if it could achieve as much as 30% in cost savings. And yet, when it comes to taking action, only 28% of respondents indicate that their organization currently outsources its Internal Audit function.
Resistance to Internal Audit cosourcing can take many forms, but there are seven recurring themes that we hear.
- We don’t want to lose control. In reality, an Internal Audit function can actually gain more control with a cosourcing arrangement. The third-party provider executive will be responsible for the day-to-day execution, but that executive reports directly to the CAE. Engaging a third party can also enhance the independence and objectivity of the Internal Audit function.
- We know better. There is no question that an in-house Internal Audit team comes with a wealth of knowledge. But a cosourcing relationship can mean having the best of both worlds by augmenting institutional and industry experience with extensive general audit experience. A third-party provider can offer highly skilled auditors who will bring new ideas and efficiencies to the audit process. They come armed with the latest tools, methodology and internal audit knowledge.
- We do a better job. In-house talent is there for a reason — because it continues to perform at or above expectations. Augmenting the current staffing model with external resources does not diminish the effectiveness of the in-house Internal Audit team. Rather, it enhances it by providing real-time access to the top talent of the third-party provider, many of whom will have specialized skill sets to address some of the unique areas not currently covered by in-house staff. It also enables Internal Audit to scale to the needs of the function on an as-needed basis.
- We don’t want to lose our people. The number of Internal Audit staff absorbed by the third-party provider will largely depend on the level of cosourcing an organization chooses. What a company gains is an entirely flexible staffing model, both in size and cost. But executives can remain confident that their top talent and the institutional knowledge they bring will be secure.
- There are too many differences in culture and value. Some organizations have a centralized Internal Audit function that doesn’t give them the flexibility to respond to cultural differences in certain jurisdictions. Others operate decentralized Internal Audit functions, which gives them regional coverage but may not offer the synergies or the efficiencies that a centralized function can often provide. Working with a third-party provider enables organizations to gain the efficiencies associated with a more centralized function, while having the right resources on the ground locally who understand the culture and the value differences.
- Cosourcing will cost too much. When viewed solely in the context of fees paid to a third-party provider, cosourcing may seem like a more expensive option. But when value and cost efficiencies gained through a cosourcing relationship are incorporated, cosourcing can actually provide a significant return on investment.
- Internal Audit is a source of future leaders — we don’t want to lose that. Cosourcing doesn’t deplete your talent pipeline. In fact, it can help build it. From rotational guest auditor programs, to knowledge sharing and education of in-house talent, to hiring highly skilled third-party resources for in-house roles, cosourcing offers several opportunities for Internal Audit to remain a robust source of future leaders for the organization.