Many private and public sector institutions (e.g. local governments, state foundations, state companies, credit providers and intermediaries, payment institutions, investment funds and banks) are required to perform internal audits. These organisations and companies often face the choice of whether to hire an internal auditor or use an outside provider. At a local government, the municipality or city council makes that decision, while in the private sector the top management body is usually the supervisory board. The financial aspect is also important, which often leads to the question of how much should be budgeted to establish the position of internal auditor or how much it will cost to outsource the internal audit service.
If the organisation decides to create the auditor position, the main expense is salary and employment taxes. According to Ministry of Finance data, as of 1 April 2019, the average gross salary for an internal auditor at a local government unit (corresponding to job titles such as internal auditor, internal controller, internal audit etc.) was 1,808 euros per month, which comes to 29,028 euros a year on salary and taxes (€2419 per month x 12 months). The average gross salary for internal auditors at central government institutions (such as ministries) was somewhat higher, 2066 euros a month, which comes to annual expenses of 33,168 euros (€2764 per month on salary and taxes x 12 months). The actual average remuneration for this position at central government institutions is actually higher, as this does not include the salary paid to managing employees (such as the head of internal audit and department head).
The requirements for the competence of the internal auditor depend on the field of activity. In the public sector, an internal auditor must have a public sector internal auditor (ASSA) or certified internal auditor (AS) certificate. All internal auditors with a certificate are required to undergo regular training in a certain number of hours each year and keeping up their level of professional knowledge. Thus, some training expenses should also be budgeted when establishing the internal auditor position.
Providers of internal audit service usually provide service on an hourly basis, at a negotiated price or a combination of the two. The price of outsourced internal audit service depends mainly on the volume of service – the time spent. The hourly rate of internal audit service is usually between 60 and 90 euros. If there is a high volume of audits in a single year, it will be more cost-effective to hire your own internal auditor. If only a few audits per year are performed in an organisation, it will definitely be more economical to outsource the service. The service provider can only provide a final answer on the cost of one audit or a regular internal audit service once the topic and scope of the audit are known and they can then estimate the time it will take.
If a company or organisation has established the position of internal auditor, we still recommend considering a combination with outsourced service. A single internal auditor may not have the knowledge needed for conducting very specific audits (such as money laundering etc.), compared to service providers whose teams include people with different backgrounds and specialities (IT, data protection and so on).
Wage statistics for 2019 show that about 30,000 euros a year should be budgeted to create and fill a full-time internal auditor position. Still, the financial consideration cannot be the only actor for deciding whether to hire or outsource. To make the decision, one should proceed from the organisation’s needs and consider both the pros and cons of both options (see the table below).
Advantages of having your own salaried internal auditor: |
Disadvantages of having your own salaried internal auditor: |
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better knowledge of the (business) environment and internal processes; among other things, a better knowledge of the expectations of the management, supervisory board and audit committee as to the internal audit |
sometimes too costly |
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more time for carrying out audits |
lack or shortage of fresh ideas |
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motivated, loyal to one’s company or institution |
lack of knowledge and skills on specific topics |
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constant monitoring of whether recommendations are followed |
objectivity risk in connection with employment relationships – due to fear of conflict, reluctance to communicate findings to good colleagues (such as friends) |
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more findings made with regard to co-workers with whom relations are not as good |
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fear of losing work as a result of the report |
Advantages of outsourcing internal audit service: |
Disadvantages of outsourcing internal audit service: |
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broader experience |
easier to lead one away from sensitive material and information that some may want to be suppressed |
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specific knowledge and skills |
hard to verify correctness of hours billed |
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a rapid response to an audit order |
complicated to conduct monitoring of recommendations |
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less vulnerable to influence due to lack of official relationship |
sometimes too costly |
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[1] Source: local government units’ institutions, basic salary of officials as of 1 April 2019 https://www.rahandusministeerium.ee/system/files_force/document_files/kov_pohipalk_01.04.2019.xlsx?download=1.
[2] Source: state institutions, basic salary of officials as of 1 April 2019 https://www.rahandusministeerium.ee/system/files_force/document_files/riik_pohipalk_01.04.2019.xlsx?download=1.
