Abstract
Organisations are constantly striving to maximise shareholder wealth by improving effectiveness and efficiency of operations. There has been an emerging trend since the early 1980’s to outsource functions which were considered non-core and have now moved into the internal audit sphere, a function which was previously maintained in-house. This paper explores similarities and differences between public and private sector internal auditing in South Africa and the perceptions of the Internal Audit Function (IAF) in both these sectors. The sample selected varied in terms of education and experience of participants that were mainly Chief Audit Executives (CAEs) and Internal Audit Managers (IAMs). Results from statistical analysis suggest that there was no significant difference in the consideration of outsourcing of internal audit function by sector. The private sector was significantly more likely to consider internal audit a core activity when compared to the public sector while the public sector was more uncertain. The value of this research study contributes to the existing body of knowledge by means of bridging the gap between the theory and practice from a developing economy and emerging market perspective, by highlighting the status and perceptions of the IAF. Key words: Chief audit executive, internal audit, internal audit manager, outsourcing, perceptions, private sector, public sector, status, service providers, South Africa.
Highlights
Outsourcing of internal auditing is not a new phenomenon; outsourcing practice dates back to eighteenthcentury and has been in continuous use in numerous industry sectors since it received impetus in the latter half of the 1980s and 1990s in the emerging service sector (Kakabadse and Kakabadse, 2000:670)
This study investigates the outsourcing the Internal Audit Function (IAF) in South African organisations with respect to: (i) Determining the current status of outsourcing the IAF in South African private and public entities. (ii) Ascertaining from Finance and Chief Audit Executives, in both the public and the private sector, what are their perceptions of the IAF
H0a: There is no significant difference between outsourcing of the IAF in the public and private sector H0b: There is no significant difference between the decision to outsource the IAF in the public and private sector H0c: There is no significant difference between the providers of Internal Audit services in the public and private sector H0d: There is no significant difference between the interactions of the external auditors in the public and private sector
Summary
Outsourcing of internal auditing is not a new phenomenon; outsourcing practice dates back to eighteenthcentury and has been in continuous use in numerous industry sectors since it received impetus in the latter half of the 1980s and 1990s in the emerging service sector (Kakabadse and Kakabadse, 2000:670). According to Jennings (1996:393) adopting a strategic view for sourcing decisions can lead to a number of benefits including reduced costs, increased flexibility, the ability to sustain a wider product portfolio, improved innovation. Recent changes in corporate governance in South Africa will affect the strategic directions taken by most organisations. The manner in which a company manages the quality and costs of internal audit services is critical to the fulfilment of its responsibility towards a sound governance system (Carey et al, 2006:12). There can be no doubt that as long as outsourcing initiatives get closer to the organisation‟s core and to activities which are at the centre of its future success, the risks involved will be greatly increased (Selim and Yiannakas, 2000:1)
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