- 15 Marks
AAA – Nov 2022 – L3 – SC – Q6 – Internal Audit and Corporate Governance
Discuss reasons for outsourcing internal audit, advantages/disadvantages, and functions that cannot be outsourced.
Question
The Internal Audit Unit of Oluvia Bank Limited has been accused of collusion with staff in committing monumental fraud. The following types of fraud were found to be common:
- Cheque suppression
- Fraudulent bookkeeping to overstate income
- Inflation of the worth of the company’s assets
- Intercepting replaced customers’ cards
- Fraudsters impersonating Senior Managers or Chief Executive Officer
- Online banking fraud, such as phishing, malware attacks, and clone websites
- Impersonating the owner of an account or using fake documents to open an account under someone else’s name (no proper Know Your Customer conducted)
The bank examiners came and were surprised at the level of fraud in the bank and requested management to address it urgently.
After the supervisory visit, the board of directors discussed the issue with the bank’s external auditors, who suggested that the bank could outsource the internal audit functions. The Board of Directors found this suggestion favorable and mandated the Managing Director to act swiftly and report back with details at the next board meeting.
Required:
a. Discuss the main reasons for outsourcing internal audit functions. (3 Marks)
b. Outline the advantages and disadvantages of outsourcing. (10 Marks)
c. Discuss which part of the internal audit function cannot be outsourced. (2 Marks)
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