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Outsourced vs. Co-Sourced Internal Audit Services in Higher Education

Learn the features of outsourced and co-sourced internal audit services for higher ed institutions.

Public higher education institutions have internal audit service needs that can help satisfy regulatory mandates, improve institution operations, and meet institutional requirements related to compliance efforts. Depending on the institution’s size, the internal audit function may not exist, or there may be a talent shortage with the ability or experience to provide in-depth internal audits. To that end, some existing internal audit departments require support, such as qualified staff, subject matter experts, or access to technology.

Fortunately, institutions can lean on third-party consulting firms to assist in creating a robust internal audit function, exploring diverse ways to structure the internal audit service, and filling in gaps that they may have. The two primary options that institutions may consider include fully outsourcing needs or co-sourcing. Each approach offers unique advantages depending on the institution's size, goals, and resources.

When deciding which approach works best, the institution should consider several factors and the key distinctions between outsourced and co-sourced approaches, including:

  • Oversight and control
  • Resources
    • Budget
    • Staffing
    • Subject matter knowledge
    • Audit software technology and tools
  • Costs
  • Independence and objectivity

Determining your institution’s appetite for each key distinction can help you decide which internal audit service will best suit your needs.

Outsourced Internal Audit Services

An outsourced internal audit team is engaged with the institution through a third-party service provider. The service provider offers oversight and control over the internal audit function by managing and staffing the institution’s internal audit projects. As a best practice, the outsourced internal audit team directly reports to the audit committee. However, the team usually works with the institution’s main point of contact to create an open line of direct communication. This reporting structure helps to enhance the perception of overall independence and objectivity.

Outsourcing provides the institution with access to subject matter experts and resources with a diverse range of experience, helping to enable the deployment of resources based on the complexity and scope of each internal audit project as needed. This arrangement can be highly cost-effective for institutions, as they avoid the expense of maintaining a full-time team. The outsourced provider handles all training, further helping to reduce costs and eliminate the challenge of building and retaining a highly specialized team.

Co-Sourced Internal Audit Services

Co-sourced internal audit arrangements are collaborative by design. The service provider and the institution work together to design a tailored support model specific to the institution. These arrangements are highly flexible, ranging from significant involvement to limited support in specific areas. Services are customized to the institution to meet their requirements, needs, and budgets rather than a “one size fits all” approach.

Depending on institutional needs, the co-sourced internal audit services function can provide audit project management, staff augmentation, or both. A co-sourced internal audit services approach can help to give the institutional internal audit team more flexibility to focus on other projects. Like outsourcing, this approach can be budget-friendly to any institution since it allows the institution to engage with the co-sourcing firm when needed. Having access to knowledgeable professionals and staffing can help reduce salary and benefits costs by eliminating the need to hire full-time internal audit employees.

Similar to outsourced internal audit services, specific subject matter experts and experienced staff are available as needed. This allows the internal audit service firm to focus support on the institutional internal audit team. The presence of subject matter experts and experienced staff can also result in knowledge sharing and skill development within the existing institutional internal audit team.

Things to Consider

Both approaches allow for an à la carte approach to help efficiently and effectively support institutional internal audit objectives. They provide your team with access to subject matter knowledge and audit technology. Whether your institution pursues outsourced or co-sourced internal audit services, the options can help support institutional internal audit needs, requirements, and regulatory mandates thoughtfully and cost effectively.

For more information on internal audit services, please reach out to a professional at Forvis Mazars.

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