WHY OUTSOURCE
What are the advantages of outsourcing your internal audit needs ….
Over the years, especially as interest margins have narrowed, bankers have had to re-look at the costs of delivering certain services. The choice was simple, if an existing service could be maintained or improved at less costs, it had to be considered. Thus the birth of outsourcing. Outsourcing brings several things to the table. First, specialty and expertise. Outsourcers specialized in one service which enabled the outsourcer to stay on the cutting edge of expertise and development. Second, efficiency. Efficiency in delivery costs is a by-product of expertise. But perhaps the greatest contributor came from within. Hidden costs and time related to training, hiring, turnover, career pathing, benefits, and yes, even paid holidays, vacations, and sick leave suddenly were exposed and evaluated more closely. Feeling surmounting pressure to focus on income generating activites, bank executives became more willing to release the day to day struggles of certain administrative functions.
Perhaps data processing was the first significant bank function which began the outsource revolution. Other areas, such as investment services, payroll, security, and marketing, to name only a few, have followed. Over the past few years, bank executives are beginning to embrace yet another function to outsource: internal audit.
Why has outsourcing internal audit captured the attention of bank executives? There are several reasons:
Few Career Auditors
First, you do not see many career internal auditors. While internal auditing offers a fertile ground for training, it does not appeal to most people as a long term career. As a result, turnover is high, thus increasing the hiring and training costs. How many times have you had to “re-educate” a new auditor who was reviewing your area?Executive Oversight
Second, most bank executives are not absolutely sure what internal audit does, thus making it difficult to hire, train and direct them. And, is it really the responsibility of the “auditee” to be hiring and training the “auditor”?Independence / Objectivity
Third, outsourcing this service provides even greater strength to the most fundamental concept of auditing: independence and objectivity. Community banks that assign personnel internal audit responsibilities, along with other duties within the bank, have always struggled with these two factors.Instant Expertise
Fourth, instant access to the expertise in all areas of banking. There is no waiting for someone to be trained or to gain experience. Deposit and Lending operations, regulatory compliance, IT, BSA, ACH, IRR, LRM and on all require special sets of knowledge, background and understanding of risks. Also keen is the access to best practices in these areas at other peer banks. Outsourcing brings this all to the table.Service Recovery
Fifth, the ability to recover internal audit services quickly can be very important to both management and the regulators. Finding another outsourcing provider to meet your needs is often much easier than trying to find an experienced full time auditor, especially if you are in a smaller market. Most outsourcing providers travel extensively to provide their services.Cost Saving
And sixth, what about costs? Cost will obviously vary depending upon the size and risk appetite of the bank. The comparison, though, is what would it cost a bank to maintain and supervise an internal audit staff versus the costs of an outsourcing arrangement. In almost all cases, when the numbers are crunched, costs of outsourcing arrangements come in far below those of internal staffing. And perhaps the greatest cost of all that never even makes it to the “number crunching” is the cost of internal turnover. This cost is arguably the highest when you consider the cost of hiring, training, career pathing, etc. person after person.Outsourcing the internal audit function brings instant expertise, experience, independence, and objectivity. Outsourcing provides executives more time to focus on revenue generating activities. Outsourcing provides stability in an environment that is often riddled with turnover. Outsourcing, if structured correctly, can even save money.