Challenges in Recruiting Specialized Internal Auditors: Case Study Evidence of Islamic Financial Institution in Malaysia

Abstract

The internal audit function within an organization is no longer confined to the conventional compliance or operational audit. Specialized internal audit has emerged with the rise of certain service sectors including the Islamic financial institutions (IFIs). This specialised audit known as shariah audit is purported to safeguard the welfare of faith-based investors by ensuring a shariah compliant IFIs. Effective shariah audit requires competent internal auditors. Shortage in qualified and competent internal auditors to conduct effective shariah audit has however become one of the challenges for the IFIs. This paper explores these challenges through the perspective of practitioners within the IFI in Malaysia as one of the active players in providing the Islamic banking products and services to the Muslims’ users. This study adopted a multiple case-study to gather the data on challenges of shariah auditors of Islamic bank to perform their duty. Interview was conducted with a representative from the IFIs regulator and 30 internal auditors from four types of IFIs directly involved in conducting the shariah audit. There is currently a lack of standard operating procedure on the recruitment of specialized internal auditors in the IFI from a mixed practice on the composition of specialized internal auditors recruited by the IFIs with most of them being accounting qualified candidates. The IFIs also prefer to hire either internally or externally acquired experienced internal auditors. The main challenge in hiring this type of internal auditors is to have professionals with vast knowledge, skills and experiences in accounting, auditing and shariah related matters. This study contributes to the importance of competency practice among Islamic banking personnel. It also contributes to the management policy in the recruitment or training of shariah auditing professionals of IFIs in Malaysia. This empirical research contributes to the importance of competency practice among Islamic banking personnel besides management policy in the recruitment or training of shariah auditing professionals of IFIs in Malaysia.