How To Get Outsourced In One Easy Step​​

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Let’s suppose you have a lawn service take care of your lawn. (An easy assumption for me because my wife learned quite a long time ago that, if she wanted a neatly manicured lawn, she better hire someone to do it.) Once a week they mow, they water, they trim, and they make everything look nice. Now imagine that someone else shows up who promises (and provides evidence) that they can supply the same service, but at a significantly cheaper price.

Do not lie. Unless that lawn service is provided by your brother-in-law (and you want to stay married; note that both conditions must exist for this premise to hold), then you will switch providers faster than you can say “Who do I make the check out to?”

And that, in an allegorical nutshell, is what happened to many internal audit shops in the 1990s. They were happy mowing the organization’s lawn. Then a cheaper lawn service (one with lots of experience, credibility, and global reach) came in and pushed them out of their jobs.

In my previous posts, I’ve talked (here and here) about two of the responses boards had when approached by these consultants — the responses that actually turned out okay for internal audit. But let’s now talk about the response that didn’t bode quite as well. And we’ll talk about the important point those shops had missed, as well as lay a little groundwork for a later discussion about problems all internal audit shops could be facing today. (See, I’m eventually bringing it all back to that very first post.)

The third response chosen by a significant number of boards started out much like the second. The board looked at the services it thought it was receiving from internal audit, it looked at the proposal from those who would outsource the service, it saw a savings (no matter what you tell yourself, folks, it is always about the Benjamins), and it signed on the dotted line.

And a wave of internal auditors found themselves looking for new organizations or careers.

The reason this response went so differently than the second — the reason the boards in these situations did not eventually call the internal auditors back into the fold — relates to the point these particular audit shops were missing. In these cases, the internal audit shops weren’t really doing something no one else could do. They weren’t providing a value that no one else could provide. These departments were just trimming the lawn. And so, these internal audit departments remained outsourced.

Now, don’t get mad at the boards. They made a good and fiscally responsible decision. They got the same service they had been receiving (maybe just a little bit more) at a much lower cost.

No, there was absolutely no one to blame but the internal audit shops that were outsourced. These audit shops had never changed, never recognized the need to provide more, and never saw themselves as anything more than a controls/compliance/finance function.

They never saw a bigger picture of what an effective internal audit shop could be.

And an interesting thing (in a very bad way) is how many of those internal auditors never, even after the cataclysm, recognized that they had done anything wrong. They did the basics believing that was all any audit shop should do. And they saw no reason to change. (Side but related note: For a good time, ask someone about the battle to get the word “consulting” added to the definition of internal audit. The fact that there was even a fight about it shows how many professional internal auditors were not understanding the evolving and more effective role for internal audit.)

There are still a lot of those auditors out there — still employed by organizations as internal auditors. I’ve met them. I’ve had the opportunity to provide training to some of them. They are scary.

So, you may well ask, if the work being done by those internal auditors can be done more cheaply — if they can be outsourced in a minute — why do they still exist?

Well, not every board wants change, even if it is the fiscally responsible thing to do. In addition, there are only so many consultants, so their board may have never been approached. With no impetus to change (in this instance, impetus meaning standing in line at the unemployment office), that type of auditor didn’t change.

However, there is an additional, important reason these auditors still proliferate. And it has to do with an event I alluded to in an earlier post — an event that seemed to be internal audit’s salvation, but may be a current source of significant harm. We’ll talk about that piece of history next.

Until then, a relatively easy homework assignment. Can you figure out what blessed/cursed event happened?

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