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#232757 - 08/17/04 04:01 PM In House Audit Dept vs. Outsourcing
Anonymous
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We are looking at bringing internal audit in-house versus our current situation of outsourcing. We are a $160 million bank with possibility of having only 1 person devoted to this with an assistant. Those of you in a similar situation, how do you cost justified staying in-house?

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Audit
#232758 - 08/17/04 04:17 PM Re: In House Audit Dept vs. Outsourcing
Jokerman Offline
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Quote:

We are looking at bringing internal audit in-house versus our current situation of outsourcing. We are a $160 million bank with possibility of having only 1 person devoted to this with an assistant. Those of you in a similar situation, how do you cost justified staying in-house?




What are you spending to monitor compliance and perform internal audit currently?

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#232759 - 08/17/04 04:33 PM Re: In House Audit Dept vs. Outsourcing
Anonymous
Unregistered

Currently we are spending in the neighborhood of $35,000 to $40,000 for internal audit alone with another $9,000 for outside compliance audits. So a total of $50,000 approximately. (maybe a little more)

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#232760 - 08/17/04 04:54 PM Re: In House Audit Dept vs. Outsourcing
rlcarey Offline
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Galveston, TX
For your size, I would say that it might be a little premature to bring it in in-house. Depending on your market, a good all-around bank auditor plus a part time assistant is going to cost you much more. Salaries are only part of the equation. Outsourcing allows you to buy a portion of a well trained individual.
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#232761 - 08/17/04 04:55 PM Re: In House Audit Dept vs. Outsourcing
MackenzieS Offline
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Oklahoma
The first thing you would do is a cost analysis based on an Auditor and Asst. Auditor's salary and benefits vs. the cost of outsourcing. Then perform a basic Pros vs. Cons review. An internal Auditor could be there in the event of cash outages to review and documents and find immediate weaknesses in lieu of noone being present from outside.

You could pass on other duties to the Auditor such as SAR reporting and special projects. There are ways to justify the increase in pay if they can provide a more efficient function for your institution than what you are currently getting. Not only that, with an internal Auditor you could generate a greater amount of work than what you probably getting for your money by outsourcing.

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#232762 - 08/17/04 04:59 PM Re: In House Audit Dept vs. Outsourcing
rlcarey Offline
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Galveston, TX
Quote:

You could pass on other duties to the Auditor such as SAR reporting and special projects.




So then who would they get to audit SARs???? IMHO - Hiring a auditor when you can't keep them 100% busy with auditing and filling the gaps with operational duties really defeats the purpose of having an independent auditor in-house.
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#232763 - 08/17/04 05:10 PM Re: In House Audit Dept vs. Outsourcing
Jokerman Offline
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Quote:

Currently we are spending in the neighborhood of $35,000 to $40,000 for internal audit alone with another $9,000 for outside compliance audits. So a total of $50,000 approximately. (maybe a little more)




Depending on your location, finding someone qualified to perform these functions (and perform them better than when they are outsourced, in my opinion) at about the same price is not out of the question.

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#232764 - 08/17/04 05:15 PM Re: In House Audit Dept vs. Outsourcing
EdOils Offline
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Louisiana
I agree that you need to keep the IA independent, but I think having an IA has other benefits over outsourcing. Our bank used to outsource and they did an excellent job. However, they were only here for 2 weeks, where I'm here all the time. I have a better handle on what our bank's needs are. I can also be used in the event of an emergency (ex: investigating fraud) where that may not fit into the outsourced auditors schedule.

Many of the benefits of an IA can not be put on a spreadsheet. I think it's great to have an Internal Auditor, but I'm a little biased. Believe me, they will have plenty of work to do. We are $100MM and I have my hands full.
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#232765 - 08/17/04 05:25 PM Re: In House Audit Dept vs. Outsourcing
Anonymous
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our bank uses a co-sourcing arrangement. it works great.

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#232766 - 08/17/04 06:44 PM Re: In House Audit Dept vs. Outsourcing
Curious Banker Offline
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Posts: 184
Midwest
Depending on your location, you can find very qualified Auditors to build your IA Dept. for the funds you listed. There are great benefits to having an in-house Audit Staff and, as you continue to grow, your IA Dept. can grow right along with your Bank. It is easier to start an IA Dept. at 100 Million than at 250 Million. As always, this is just my opinion. Good luck with whatever you decide.

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#232767 - 08/17/04 07:27 PM Re: In House Audit Dept vs. Outsourcing
MackenzieS Offline
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Oklahoma
Quote:

Quote:

You could pass on other duties to the Auditor such as SAR reporting and special projects.




So then who would they get to audit SARs???? IMHO - Hiring a auditor when you can't keep them 100% busy with auditing and filling the gaps with operational duties really defeats the purpose of having an independent auditor in-house.




That would be the examiners. We are a small bank..as is the original poster. Therefore most of us perform duties you might not expect in a larger institution, this just happens to be one of my duties. In addition I am the Compliance Officer who knows the regulatory requirements for filing SARs so that makes me uniquely qualified.

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#232768 - 08/17/04 07:39 PM Re: In House Audit Dept vs. Outsourcing
Anonymous
Unregistered

What should be the requirements (educational and bank experience) of a person heading up the IA department? CPA/CIA?

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#232769 - 08/17/04 08:14 PM Re: In House Audit Dept vs. Outsourcing
Jokerman Offline
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Quote:

What should be the requirements (educational and bank experience) of a person heading up the IA department? CPA/CIA?




Those would certainly give you an idea of their competence, but I would not limit yourself to only individuals with those qualifications. Someone who has banking experience, examiner experience, etc., might be just as productive as someone with less experience but both of those certifications. (Full disclosure: I have both.)

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#232770 - 08/17/04 09:04 PM Re: In House Audit Dept vs. Outsourcing
RR Jen Offline
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Quote:

What should be the requirements (educational and bank experience) of a person heading up the IA department? CPA/CIA?




Possibly, but I don't. I do have a degree in Accounting, 5 years banking experience and completed my CCBIA a year and a half ago. I started the IA program in our institution at $250 million and 10 branches...IMO it would have been much easier to have started when we were $150 with 6 branches.
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#232771 - 08/17/04 09:06 PM Re: In House Audit Dept vs. Outsourcing
RR Sarah Offline
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Up North
My bank is a $160MM bank and I am the sole Internal Auditor. Let me tell you I am not lacking for things to do!
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#232772 - 08/17/04 09:56 PM Re: In House Audit Dept vs. Outsourcing
Walleye Woman Offline
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Walleye Woman
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I am the sole Internal Auditor and Compliance Officer for a bank of $165MM. I agree with Sarah, there is not an abundance of free time. I previously held the same position at a bank of $50MM but also wore other hats, with the blessing of the examiners.
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#232773 - 08/18/04 01:17 AM Re: In House Audit Dept vs. Outsourcing
Anonymous
Unregistered

Would you be interested in sharing a schedule of how you manage both compliance and audit?

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#232774 - 08/18/04 02:20 PM Re: In House Audit Dept vs. Outsourcing
Anonymous
Unregistered

Would anyone be willing to share with me their Internal Audit Schedule if you are also a compliance officer?

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#232775 - 08/18/04 02:46 PM Re: In House Audit Dept vs. Outsourcing
MackenzieS Offline
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MackenzieS
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Oklahoma
If you will PM me I will be glad to share my audit schedule with you.

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#232776 - 08/18/04 02:51 PM Re: In House Audit Dept vs. Outsourcing
Anonymous
Unregistered

Pardon me..I am new to this. Would you please explain how I PM you?

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#232777 - 08/18/04 03:39 PM Re: In House Audit Dept vs. Outsourcing
Starter Offline
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Starter
Joined: Aug 2004
Posts: 513
NJ
I am sole Internal Auditor at just below $250mil - 3 months ago had to hire PT auditor to help pick up the slack - you have to figure, that while you are small it is a great opportunity to hire an Internal Auditor now - it takes alot of time to perfect an entire Internal Audit Department - alot of up front time for research - creating audit programs from scratch - properly analyzing all pertinent areas and functions of your institution - hire now, there will be plenty of work to be performed!!!!

Also in my opinion, I am sure that you will be able to find a completely qualified person willing to be paid less than what you are paying for outsourcing - once established, you can re-visit the decision to hire another PT person -

I am very glad that I have worked by myself for the past 2 years to create the Internal Audit function and department!!

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#232778 - 08/18/04 05:10 PM Re: In House Audit Dept vs. Outsourcing
MackenzieS Offline
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MackenzieS
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Posts: 1,722
Oklahoma
Quote:

Pardon me..I am new to this. Would you please explain how I PM you?




At the top of the threads where it says "Main Index, Search, etc." there is a link to "New User". That will take you to the sign-up page. Once you are registered you can click on someone elses screen name and there is an option to send them a Private Message. This allows two users to talk privately. Most posters will not put their email address in the threads for everyone to see, but they are willing to share information in private.

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#232779 - 08/18/04 08:31 PM Re: In House Audit Dept vs. Outsourcing
Red Offline
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Red
Joined: Dec 2002
Posts: 345
New England
Will you still outsource IT audit? Depending on your area, I think you may be hard pressed to find someone in that price range that can perform an adequate IT audit (what the examiners will look for). I am a proponent of outsourcing with a skilled liaison working with them. I was in house- then we outsourced and I changed jobs but still work as a liaison (talented??not sure). With outsourcing you are able to avoid the political bs that comes with everyone working for the same company. "Don't tell the auditor" syndrome goes away. You also get "best practices" from the outsourced firm because they gain information from other banks for processes and exams, etc. In addition, as you grow, your examiners are probably going to want a CPA or CIA on staff or performing the audits (that happened here, that's how I got hired in the first place). We are about $600 million w/ 10 branches. Outsourcing saved us tens of thousands. Also, think about all the training and seminar expense to keep someone up to date to audit everything. Good luck, let us know what happens.
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#232780 - 08/18/04 08:49 PM Re: In House Audit Dept vs. Outsourcing
Jokerman Offline
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Posts: 12,846
Good point, Red.

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#232781 - 08/18/04 10:19 PM Re: In House Audit Dept vs. Outsourcing
Anonymous
Unregistered

We outsource our IA to a big 4. It's expensive, and in my opinion, senior management limits the full scope of the engagement to just the bare minimum to save money. For example, I have to hire an external consulting firm to get any kind of independent compliance reviews done (like BSA) because the big 4 can't or won't do it (cost and lack of expertise - ) Be sure your senior management is willing to enter into an adequately scoped engagement if you do outsource.

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