Business risk services

Internal auditor: in-house or service provider?

Riin Veidenberg Riin Veidenberg

For many companies and institutions, internal audit is a legal obligation that cannot be waived even in difficult economic times. Therefore, the question inevitably arises as to how this obligation is most favourable and reasonable based on the needs of the company - hire your own internal auditor or outsource?

By law, the internal auditor must be in-house function in banks and insurance companies, but many others (eg creditors and intermediaries, payment institutions, electronic money institutions, local governments, state foundations, state-owned companies, investment funds, etc.) have the opportunity to decide how to arrange this obligation. In private sector, this decision is usually made by senior management and in local government by the council.

The salary cost of the internal auditor is at least 35,000 euros per year

When creating an internal auditor's position, the main cost of the company or institution is the salary cost. According to the Ministry of Finance's salary statistics published in 2020, the average gross salary of an internal auditor working in the public sector is 2,222 euros per month, which makes the size of the annual salary fund 35,676 euros. In determining the average gross salary, we used the positions of internal auditors (internal auditor, lead auditor, audit manager, advisor, senior auditor) in various public sector institutions, but excluded the salaries of department heads from the calculation, which means that the average salary in this area is slightly higher.

Although the analysis does not reflect the salary data of private auditors in the private sector, it can be assumed that the overall salary level is somewhat higher than in the public sector. All local governments have an internal audit obligation (read more here), but the positions created to fill it are not always named internal auditor, which makes it difficult to identify the average salary according to the salary statistics of the Ministry of Finance. However, it is clear that in local government, salaries in positions similar to the internal auditor (eg internal controller) remain lower than in the public sector (especially ministries).

The requirements for the competence of an internal auditor depend on the field of activity of the institution or company. For example, a public sector internal auditor must have the professional level of either a public sector internal auditor (ASSA) or a certified internal auditor (AS), but, for example, an internal auditor of an electronic money institution must be a certified internal auditor, which requires a CIA certificate. All professional internal auditors are required to continuously improve themselves, which means regular participation in training and professional development. Therefore, some training costs should be included in the budget when creating the post of internal auditor.

The cost of the service depends mainly on the time spent

The internal audit service is usually purchased on an hourly basis, at an agreed fixed audit price, or as a combination of both. However, the price of the service depends mainly on the volume of the service - the time spent and the type of service. By its nature, an audit is a reassuring service that requires an in-depth study of the subject, which inevitably costs more time than advisory work (eg consultations, risk assessments). The hourly price of the internal audit service is negotiable, depending on both the service provider and its competencies, but in our experience it is usually between 60 and 90 euros.

If the volume of internal audits and advisory work is very large during the year, it is definitely more cost-effective and reasonable to have an in-house internal auditor. If the company or institution is small or its need for the service and number of internal audits is limited to just a few audits per year, it is definitely cheaper to outsource the service. The final answer on how much one internal audit, regular internal audit service or internal audit consulting work costs can be concluded by the service provider only when the topic and scope of the specific work is known.

Even if an internal audit position has already been created in the company or institution, it is often preferred to combine it with an external service provider. As service providers usually employ people from very different backgrounds and specializations, they are used for specific audits (eg prevention of money laundering and terrorism, data protection and information security, IT audits, etc.).

Trust and cooperation are important

Public sector pay statistics for 2020 show that a salary fund of EUR 35 000 per year should be taken into account when creating a full-time internal auditor. In addition to financial considerations, the decision should take into account the real needs of the institution, the legal requirements for the organization of internal audit work and the competence (certificate) of the internal auditor, and consider the pros and cons of both options.

The purpose of the internal auditor is to provide assurance to the management of the institution that the activities and decisions of the institution are correct and in accordance with the legislation. A prerequisite for achieving this goal is mutual trust and cooperation between the internal auditor and management. Therefore, we recommend that you thoroughly familiarize yourself with the people who will take on this responsible role when recruiting an internal auditor or when purchasing the internal audit service.

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