Having an In-house Internal Audit team

In this article, I will emphasise on why every mid or large size company should definitely have their own In-house internal audit team. I will share few advantages that will help you to make up your mind to have a dedicated Internal audit department in your organisation. Obviously, there are also some advantages of having external firm as internal auditors but its always recommended to have in house internal audit team for some reasons I will be sharing later in this article.

According to section 138  of The Companies Act “Such class or classes of companies as may be prescribed shall be required to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company”

So as per word of law,  you need to appoint an Internal Auditor whether outsourced or in-house  (Audit Head).

Now, I will point out some advantages of having an In house internal audit team over hiring an external CA firm.

Advantages of Having In-house Internal Audit department.

Better business knowledge :

If you hire internal auditors as an employee, he will gradually gain understanding of your business and will use this expertise while performing audits. although outsourced resources from a CA firm would also have some industry expertise but having in depth knowledge of your company business will advantage in house team over external team.

More stability :

If you outsource your internal audit function to an external  CA firm than there might be some stability problem as employees in CA firm tends to switch jobs more often (personal experience). Every time when a new replacement comes, he/she hasto start from scratch.

Closure of open audit recommendation:

One of the biggest advantage of having an in house internal audit department is that you can keep a close track on audit recommendations. External firms will either not track open audit recommendations or charge some extra cost for tracking. Also an in-house auditor will be cautious while raising any observation if closure of the same is not possible in given scenario.

More than just fault finding :

The role of internal auditor is to provide independent assurance that an organisation’s risk management, governance and internal control processes are operating effectively. In house team has this KRA stick to their mind and they divert more energy in suggesting improvements in  the processes rather than just fault finding.

Auditor is Watchdog, not a Blood Hound

Quality over quantity in audit observation:

In-house team always looks for quality observations that have bigger impact, rather than no. of observation. They know that audit committee is interested only those observations that are having some bigger impact on the organisation goal or objective.

Better Auditor and auditee relation:

Having an in-house audit team leads to better relationship between the auditor and the auditee. The reason: Employees will tend to have better relations among themselves as compared to some outsiders. An in-house audit team uses this relationship in better management of their internal audits and speedy closure of their observations.

Co-Sourcing model:

The most commonly used model in the recent past in managing internal audit function is a co-sourcing model. In this model organisation will have their own in-house internal audit team as well as some experts from outside of the organisation for certain specified functions ( IT audits, HR audit etc.)  . The advantage of this model is that company can limit no. of FTE in their audit department as well as can use expertise of external parties getting the benefit of both the worlds and better end result.

Note : These are my personal views based on my experience in internal audit field. Having said that, it is important to mention that having an internal audit team also has certain disadvantages w.r.t. cost and management point of view. However, these are common matters and are not covered in my article because the very focus of this article was to help making-up mind to have an internal audit team rather that dissuade into not having one.  Some might not agree with my opinion or have some counterpoints against my points. Do comment below if you feel differently or you have some other points , will try to incorporate the same in this article.

Conclusion : We can count many advantages of having an in-house internal audit department over hiring an external audit firm. Also we can’t ignore the fact that external firms may have expertise in few areas where they have edge over in-house team. It is apt for a organisation to have a co-sourcing model. All the audits will be managed by in house team only but they can take help of external vendors where they need their expertise.