As financial institutions approach year-end, attention often turns to budgeting, strategic planning, and preparing for the upcoming audit cycle. It is also the perfect time to step back and ask an important question: How is your internal audit program really performing?
Whether your audits are performed in-house, fully outsourced, or through a co-sourced arrangement, year-end presents an opportunity to evaluate more than simply which audits were completed. It is a chance to assess whether your internal audit function is helping your institution effectively identify, manage, and respond to risk.
Are You Getting the Value You Expected?
For institutions that outsource internal audit activities, year-end is also an opportunity to evaluate the relationship with their current provider.
Questions management and Boards should consider include:
- Does our audit provider understand our institution and goals?
- Are audit reports providing meaningful insights or simply checking boxes?
- Is the provider proactive in identifying emerging risks?
- Do they bring industry knowledge and best practices?
- Are audit recommendations practical and tailored to our institution?
- Are we receiving value beyond the individual audit reports?
A quality internal audit program should provide more than regulatory compliance. It should serve as a valuable risk management tool that helps the institution strengthen controls, improve processes, and prepare for future challenges.
If the answer to some of these questions is “not really,” it may be time to explore alternative options.
Does Your Risk Assessment Need a Fresh Look?
The annual risk assessment serves as the foundation of an effective audit program. Unfortunately, many institutions find themselves relying on risk assessments that have changed very little from year to year. While consistency is important, so is ensuring the assessment reflects current realities.
A fresh perspective can often uncover:
- Emerging operational risks.
- Changes in regulatory focus.
- New technology-related threats.
- Gaps in audit coverage.
- Areas receiving too much or too little audit attention.
- Opportunities to improve audit efficiency.
Having an independent review of the institution’s risk assessment and audit plan can provide valuable insight and help ensure audit resources are focused where they can deliver the greatest benefit.
When Expertise Matters
Another common challenge institutions encounter is finding the right expertise for increasingly specialized audit areas.
Internal auditors are expected to assess a growing range of risks, including:
- Information Technology
- Cybersecurity
- BSA/AML Compliance
- Enterprise Risk Management
- Third-Party Risk Management
- Real-Time Payments and FedNow
- Digital Banking
- Model Risk Management
- Regulatory Compliance
For many institutions, maintaining deep expertise across all these areas internally is not realistic. Looking at a co-sourcing option or full outsource can be helpful.
The Benefits of a Co-Sourced Approach
Co-sourcing allows institutions to retain ownership and oversight of their internal audit function while supplementing internal resources with specialized expertise when needed.
Rather than replacing the internal audit team, co-sourcing enhances it. For example, an institution may handle routine operational audits internally while engaging specialists to perform audits in higher-risk or more technical areas.
This approach can help institutions:
- Address resource constraints.
- Obtain specialized expertise.
- Increase audit coverage.
- Meet evolving regulatory expectations.
- Continue executing the audit plan without overburdening staff.
- Gain access to industry-leading practices and benchmarking insights.
Perhaps most importantly, co-sourcing provides flexibility. Institutions can engage expertise where and when it is needed most instead of maintaining specialized resources year-round.
The Benefits of a Fully Outsourced Internal Audit Function
For some financial institutions, a fully outsourced internal audit model can provide an effective and efficient solution for meeting audit and regulatory expectations while allowing management to focus on core business operations.
In a fully outsourced arrangement, a qualified third-party firm assumes responsibility for executing the institution’s internal audit program, including risk assessments, audit planning, fieldwork, reporting, and communication with management and the Board or Audit Committee. While oversight remains with the Board, the day-to-day administration and execution of the audit function are performed by experienced audit professionals.
This approach can help institutions:
- Access a dedicated team of experienced internal audit and regulatory specialists.
- Eliminate staffing challenges, turnover concerns, and training requirements associated with maintaining an in-house audit function.
- Obtain specialized expertise across a broad range of operational, compliance, information technology, and risk management areas.
- Increase audit coverage without adding headcount or administrative burden.
- Enhance independence and objectivity in the audit process.
- Meet evolving regulatory expectations and industry best practices.
- Gain valuable industry benchmarking insights from professionals working with multiple financial institutions.
Perhaps most importantly, a fully outsourced model provides consistency and scalability. Institutions benefit from a team with diverse expertise and the ability to adjust audit resources as risks and priorities evolve. Rather than investing significant time and resources in recruiting, developing, and retaining internal audit staff, management can rely on a dedicated partner to deliver a comprehensive, risk-based audit program that supports strategic objectives while maintaining a strong control environment.
Looking Ahead to 2027
As management teams and Boards begin discussing next year’s audit plan, now is the time to evaluate whether the current approach remains the best fit.
Consider asking:
- Is our audit plan aligned with today’s risks?
- Are there areas where we need additional expertise?
- Have resource limitations caused audits to be deferred?
- Are we satisfied with the value we’re receiving from our current provider?
- Would an independent perspective improve our risk assessment process?
The answers may confirm that your current program is working exactly as intended. Or they may reveal opportunities to strengthen your audit function through a refreshed risk assessment, a revised audit plan, a new provider relationship, or targeted co-sourcing support.
Final Thoughts
Year-end is a great opportunity to revisit whether your internal audit program provides the insight, assurance, and expertise needed to help your institution manage risk effectively.
If you are evaluating your internal audit program, risk assessment process, or audit resource strategy for the year ahead, our Internal Audit team can help you assess your current approach and identify opportunities to strengthen risk coverage, enhance efficiency, and support your institution’s goals. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
