The impact of decisions to outsource the internal audit function in South Africa

Elmarie Papageorgiou,Yaeesh Yasseen,Nirupa Padia

doi:10.4102/jef.v6i3.249

Elmarie Papageorgiou, Yaeesh Yasseen + Show 1 more

Open Access

https://doi.org/10.4102/jef.v6i3.249

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Abstract

Organisations are constantly striving to maximise shareholder wealth by improving the effectiveness and efficiency of operations. Since the early 1980s, there has been an emerging trend to outsource functions considered to be non-core. These trends have now moved into the internal audit sphere, a function that was previously maintained in-house. Using survey data collected from organisations in the South African private and public sectors, the degree of internal audit outsourcing, the rationale behind organisations’ outsourcing decisions, the types of internal audit services provider, the perceived status of in-house internal auditing and perceptions of independence of outsourced internal audit functions were determined. It was noteworthy that no significant differences were observed between sectors with regard to interaction with external auditors and threats to independence. The biggest difference appears to be that private companies chose a “Big 4” accounting firm more often than the government sector did. This study contributes to the existing body of knowledge and bridges the gap between theory and practice by highlighting the impact that the decision to outsource has had on the South African internal audit function.

Highlights

Internal auditing as a profession on the global landscape is relatively new
Basic frequency tables were used to present the results of the questionnaire regarding the organisation’s consideration of outsourcing the whole or part of their internal auditing function by sector, the duration of this outsourcing, the level of satisfaction with the quality of the service provided by sector, factors affecting the decision to outsource, the proportion of the internal audit service hours provided by external service providers versus external and internal providers combined, and the percentage breakdown of outsourced internal auditing hours by activity
Of the entire purposive sample approached, 72 organisations responded. These respondents comprised chief audit executives (CAEs), internal auditors, senior managers and managers, with the majority of respondents occupying the position of Chief Audit Executive (CAE) or equivalent

Summary

Introduction

In South Africa the profession was established in 1964 with the formation of the Institute of Internal Auditors South Africa (IIASA). This study includes the iKUTU Report (IIASA, 2010), which was published by the Institute of Internal Auditors in 2010. Over the past two decades, the South African economy has faced many challenges, the first being the transition from a racist regime to one where all stakeholders of the economy can participate . This in itself posed major challenges, and the first King Report on corporate governance (IOD, 1994) aimed to educate these new stakeholders about being a corporate citizen and how to fulfil their new-found responsibilities. For South Africa this was not easy, as the post-segregated economy lacked the skills needed to resource itself

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