Outsourcing Internal Audit Services: An Empirical Study on Queensland Public‐Sector Entities

A study of Queensland public‐sector entities suggests outsourcing of internal audit services to be extensive (88%), with 51% of respondent agencies adopting co‐sourcing and 37% of the agencies fully outsourcing. Results suggest that internal audit outsourcing is largely adopted for non‐financial reasons such as lack of technological know‐how and service quality rather than financial reasons. Deficiencies of current governance arrangements concerning internal audit outsourcing include (1) a lack of audit committee involvement in outsourcing processes, particularly in co‐sourcing entities, and (2) inadequate segregation of duties whereby the same senior management is involved in key arrangements including selection, approval, negotiation and evaluation of contractual performance.