Co-Sourcing and
Outsourcing of the
Internal Audit
Function
Roundtable Discussion of
Strategic Alternatives
October 23, 2008
Today’s Discussion
Emerging role of Internal Audit
Success factors and reason to source
Internal Audit sourcing alternatives
Business Cases
About Jefferson Wells
Q&A
Emerging Role of
Internal Audit
Emerging Role of Internal Audit
Governance structure,
functional committee
set up, policy setting
management of Corporate
business risk Governance
and
Participate of
strategic
planning Risk Management and
Strategic Planning
Information
Protection,
accounting and
operations control
Base Level Internal Control Checking
Success Factors and
Reasons to Source
Success Factors
“Sourcing” Internal Audit works well when the following
conditions exist:
The mission is clearly articulated and objectives are mutually agreed upon
Internal Audit is considered important
Budget constraints drive need for flexibility
Rapid changes in the business
Turnover limits in-house resources
Specialized skills are necessary
Technology enhancements drive efficiency
Geographically disbursed operations
The investment is reasonable
Teaming approach
Why Leading Organizations Are
Sourcing
Allows management to focus on core competencies
To acquire needed skills
Subject matter or Systems expertise
Geographic needs
Innovative approaches
Need for flexibility regarding cost structure – variable vs.
fixed cost
Lower net cost, i.e., “value for money”
Access to technology/knowledge repositories
Talent Attraction / Retention / Total Life Cycle Hiring Costs
Internal Audit
Sourcing Alternatives
Sourcing Continuum – Sourcing
Alternatives
Full In-House
- Execution of internal audit
Full
program using only internal
In-House
resources
Full
Internal
Staffing
Co-Sourcing
- Outsource selected functions,
divisions, geographies, and/or
projects
Co-Sourcing
Full Outsourcing
- Delivery of all internal
audit services by a third
party
Limited
Internal
Staffing Full
Outsourcing
Sourcing Alternatives
Full In-House Model
Benefits Concerns
Highest degree of control over Internal Audit not a core competency
Internal Audit function Static resource model
High sense of Requires high level of management
organization connectivity time and attention
Knowledge of the company, Inability to own specialized resources
processes and people Increasing stakeholder expectations
Traditional structure for Board Investments necessary to redirect
and management the function
In-house talent training ground Continuous recruiting,
New hires bring new expertise training, methodology and
technology investments
Highest “fixed cost” model
Co-Sourcing Model
Benefits Concerns
Functional control remains in-house Provider’s organization and
Rapid response to needs and issues industry knowledge
Allows management to focus on Possible poor cultural fit
core competencies Shift from managing a department
Access to specialized resources to managing a relationship
Eliminates certain recruiting, training Dependent upon strong Chief
and employment costs Internal Audit Executive
Cost flexibility via “as needed” Staff continuity
resources (variable vs. fixed cost) Certain overhead and support
Access to service provider’s best costs remain
practices and technologies
Geographic coverage with reduced
travel costs
Overcomes scarcity of qualified
resources in the market
Ability to terminate the relationship
Full Outsourcing Model
Benefits Concerns
Highly cost-effective option Comfort level of Board of Directors
Allows management to focus on Knowledge of organization and
core competencies industry
Provider “owns” human resources Possible poor cultural fit
Provider is responsible for day-to- Management must “own” all
day administration of the function strategic decisions
and execution Internal Audit may have less
Client controls risk assessment and in-house linkage
audit plan Model may need to be adjusted to
Cost and skill set flexibility provide a source of executive talent
Highly specialized skill sets on as- Difficulty in re-establishing
needed basis in-house function
Global resource pool
State of the art technology/
knowledge sharing
Business Cases
Our Success Stories
Client
background Needs We provided & the Results
A NASDAQ listed The client required a co-sourcing Co-sourcing IA structure where Jefferson
company specializing in audit arrangement to execute Wells assists in planning and supports the
the production of their Asia-Pacific Audit Program. execution of Asia-pacific audit program. We
precision metal with They were experiencing high provided experienced auditors to supplement
annual turnover of levels of staff turn-over and high the audit team to perform both IA and SOX
US$421 million. costs associated with the audits. This allowed the company to better
recruitment, retention and retain the current audit staffing levels while
training of IA staff. minimizing on-going audit costs.
A NYSE listed company The group outsource its SOX The Hong Kong Office team up with the
specializing in filtration, testing to Jefferson Wells on a colleagues of our Japan Office and we
separations and global basis. In Asia, Hong Kong conduct the testing in a timely and
purifications technology Office is responsible for the SOX professional manner.
with annual turnover of testing in Japan.
US$2.6 billion With the participation of our native Japanese
speaking team member, the language barrier
between the local client and audit team is
avoided.
Our Success Stories
Client
background Needs We provided & the Results
An innovate Fortune Following an acquisition, the We developed and implemented a risk-
500 specialty chemical client found it lacked the right based internal audit strategy, which
company with kind of internal audit resources provided assurance to the company’s
manufacturing facilities to meet the needs of its newly Audit Committee and Board of Directors
in 20 countries and expanded organization, on the adequacy of internal controls in
annual turnover of US$4 specifically, the professional existing and new business units.
billion with sufficient domestic and
international knowledge and With the implementation of new risk-
expertise to employ a risk- based internal control strategy and
based internal audit approach methodology, the client’s internal audit
and methodology across the department now has a balanced approach
organization. to SOX compliance and a proven process
for performing internal audits in a period
of significant growth.
About
Jefferson Wells
About Jefferson Wells
Founded in 1995 as Audit Force, to be credible alternative to Big 6 firms
for Internal Audit Services
Name changed to Jefferson Wells in 1999. Initial concept expanded to
include Finance and Accounting, Technology Risk Management, and Tax
Company acquired by Manpower in 2001, to be run as a wholly owned
subsidiary
At present, 2500+ professionals based out of 54 offices located in 9
countries around the world.
Average experience level is almost 18 years; minimum experience level is
5 years
To date, we have served more than 4700 clients (including 50% of
Fortune500) and performed work in 30+ countries
About Jefferson Wells Asia
Hong Kong office was set up in 2007 as regional hub
Current client engagements include locations in Hong Kong, China,
South Korea and Japan
Regional industry experience include banking, insurance, high-tech,
professional services, automotive, manufacturing, consumer products
Main focus in Finance Operations and Internal Audit & Controls Solutions
Existing capabilities include, but not limited to, the following:
– Internal Audit Outsource/Co-source
– Contract compliance & cost recovery audits
– SOX compliance
– Regulatory compliance
– Policies & procedures development
– Financial process improvement
– Shared services center
– Interim professional
– Investment accounting
– Project management
– Accounts reconciliation
Jefferson Wells Model
No attestation work – avoids conflicts of interest
Hire only Experienced Professionals – no trainees
– Salaried Professionals with deep industry and/or public accounting
backgrounds
– Extensive skill sets and cross-functional abilities
High Value Proposition
– Flat, local, team based business model with no partnership overhead
– Highly competitive rates representing superior “value for money”
– Enterprise wide sharing of knowledge/best practices
Focus on client needs – and client success
Results-Driven
– Executing on our business model leads to positive references and
additional business opportunities
Questions/Discussion