Costs and Benefits of an Internal Audit Department: A Case Study of the Zimbabwean Banking Sector

Abstract

The purpose of this study was to establish whether it is more effective  to outsource the internal audit function as opposed to having a permanent internal audit within an within an organization. The study took a case study approach of banks in Harare (the capital city of Zimbabwe where all banks' headquarters are housed), using a sample size of twenty five respondents [25] drawn from four different departments, namely the finance and administration department, the internal auditing department, the risk management department and the accounting department from each bank.  The researcher gathered data through the administration of questionnaires and holding interviews. Results reflected that the internal audit department is viewed as a major cost component within an organisation. This was attributed to the initial cost of establishing the department and the documenting system of internal control, a significant cost that requires time to be recovered. Results also showed that, despite the initial costs, an effective internal audit department results in substantial benefits that outweigh the costs. Respondents regarded internal controls, to minimize financial misstatement and fraud, as critical to the organizations' ongoing success hence the need for a robust internal audit department. Other respondents also highlighted, despite the cost factor, that they have internal audit departments to meet statutory requirements as opposed to the benefits the organisation may reap from the internal audit department. The research recommended for a more proactive approach to tackling fraud and reducing misstatements by efficiently utilizing the internal audit and  forensic accounting expertise at its disposal and also vulnerability analysis involving all departments across various functions of the organization in order to identify areas that are more prone to loopholes and fraud eminences.