ACUA: The Importance of Retaining the Internal Auditing Activity In-House

The Importance of Retaining the Internal Auditing Activity In-House

What is ACUA?	The Association of College and University Auditors (ACUA) is an association of more than 500 colleges and universities, committed to increasing knowledge on internal auditing, regulatory compliance and risk management in higher education.
How does The Internal Auditing Activity Add Value?	Internal auditing is an “independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes."¹ Economic, regulatory, and ethical concerns are quickly changing the business world in which institutions of higher education operate. Although not mandatory, the spirit of the Sarbanes-Oxley Act of 2002 is being incorporated in the governance processes of many institutions of higher education and the requirement for a strong, independent internal auditing activity is one of several areas being considered by senior administrators and trustees. This document states ACUA’s position on the advantages of maintaining The Internal Auditing Activity in-house.
Traditional Purpose	The traditional purpose of internal auditing is to evaluate¹: The reliability and integrity of information Compliance with the institution’s policies and procedures as well as external regulations The safeguarding of assets The efficient and effective use of resources Accomplishment of established operational goals and objectives
Expanded Purpose & Provided Services	In many organizations that employ our association members, and in accordance with the Institute of Internal Auditors’ updated definition of the practice of internal auditing, the activity has been greatly expanded to include among others: Helping management with identifying and assessing strategic risks Proactively incorporating training, continuous improvement, and accountability into the management of institutions of higher education Assisting individuals who perform operational and financial activities with risk assessments and action plans in their responsibility areas to heighten awareness of major exposures, loss potential, and/or transactional anomalies and facilitate discussions of practical ways to manage or avoid them Providing programs, training materials and forums that address ethical business conduct Participating in process and internal control improvement initiatives Helping the governing board or trustees, through the audit committee, carry out their fiduciary responsibilities ACUA believes that these additional activities can best be provided if internal auditors are directly employed by institutions of higher education.
Making an Internal Investment	The practice of internal auditing is considered by professional associations such as the Institute of Internal Auditors and American Institute of Certified Public Accountants to be an integral component of the overall internal control structure of an organization. As such, internal auditors work in partnership with management to achieve the institution’s goals and objectives. Dedicated, organizationally based internal auditing resources have the advantage of being able to assimilate the institution’s culture and history in order to fully understand the impact of risk and potential outcomes. In addition, in-house internal auditors have the advantage of understanding the interrelationships between management and the dynamics and politics of the organization. They may also be better able, through the benefit of their own relationships with management, to navigate the specific cultures and environments of the institutions they serve. Additionally, in-house internal auditors provide the following advantages: In-depth knowledge of the organization’s policies and procedures Specific knowledge of higher education administration, governance and regulatory matters Ability to quickly respond to management concerns about issues of compliance, allegations of fraud and employee misconduct, or any internal control weaknesses Continuity of staff that are better positioned to build trust and confidence with management Ability to provide outreach and training on concepts of internal control and ethical business conduct at no additional cost to the institution
The Co-Sourcing Option	There will always be challenges in meeting the varied demands inherent within an institution of higher education, regardless of the size of the internal audit department and the expertise of the individual staff members. It is incumbent on the chief audit executive to communicate to the institution’s board and/or audit committee when a specific risk has been identified and the requisite specialized skills cannot be provided by in-house audit staff. In such cases, there are many options available including co-sourcing which may be accomplished by partnering with other campus departments, faculty members and/or other internal audit shops in close geographical proximity or contracting with specialized auditors on an as-needed basis.
Our Recommendation	Accordingly, ACUA believes a properly trained internal audit staff, employed directly by a college or university and dedicated to the organization and the profession of internal auditing, together with selective co-sourcing when required, provides the optimal mix of services to assist governing boards, trustees and management in responding to the challenges of higher education governance and administration.
¹ Institute of Internal Auditors Standards of Professional Practice

Open letter to the Institute of Internal Auditors on Resourcing the Internal Audit Function