This might be a question that receives a "It depends on how your institution is structured" answer, but here it goes anyway.

I am the internal auditor and we are in the process of looking for a 3rd party to perform loan review services for our bank. I have been tasked with searching out firms, receiving the proposals, calling references that were provided, etc. Basically performing the Vendor Due Dilligence. The list of candidates will be presented to my audit committee and they will have final vote on who is chosen based on the information gathered. Is there any sort of conflict or independence issue with having the auditor perform this critical work? I do audit our Vendor Management Process and look at a sample of all new Vendors to ensure due diligence was performed according to policy. Or is it Internal Audit's responsibility to perform the due diligence on all 3rd Parties who provide audit/review services?

I would agree with your first statement. This will vary as to who is in the best position to perform this task or was it just dumped on you. My personal opinion is this is a management function but they may have confidience in you performing this task.

But then you cant audit a task you are performing...

Prior to having a risk management officer, we had vendor management in accounting. It wasn't ideal, but it worked. Once we had a full time RMO, it moved there. I basically herded the cats, management did all the work.

Is this third party perforning internal audit services or quality control services with respect to the loans? If IA work, then I would think you as the internal auditor would perform the vendor due diligence. If QC work, then it should be management's responsibility, not internal audit's responsibility as that would be a conflict in my opinion.