This question inevitably gets turned into a conversation about being in-house internal audit or not. How can an in-house service be independent? Clearly the staff are dependent in a real and tangible sense, for their jobs, on the organisation in a way outsourced providers are not. I would say we need to not look at independence in such two-dimensional terms. The Institute of Internal Auditors’ definition of independence is a little more helpful ‘The freedom from conditions that threaten the ability of the internal audit activity to carry out internal audit responsibilities in an unbiased manner’.
Yet if we think about the internal auditor faced with the need to raise a challenging or difficult issue or risk with the board and senior management team it can appear different. The outsourced provider can be retendered or removed without any difficult conversations. The outsourced provider is likely to see the organisation’s senior management team as its customers. Aren’t customers always right? The outsourced provider requires its bills to be paid.
Think then of the in house provider. They are an employee. Their promotion could be linked to the organisation (but the CAE should be senior already). They can only be removed through HR legislation (which in the UK makes this difficult and expensive without good cause). The CAE in the UK is protected by public interest disclosure legislation (whistle-blowing). The in-house CAE can also navigate board and senior management politics to build up alliances and support for their position and role.
Thus the independence perception is somewhat more balanced. For me independence is not a set of badges, pay and reward structures or legal frameworks, it is a state of mind. I can be knowledgeable, experienced, have strong personal views on, and even dislike a view, person or issue, but it would not stop me from putting all of that aside and approaching a business risk analysis and resulting report in an objective way. Someone recently stated that I had a remarkable ability for self analysis. I took this as a compliment, as I always try to step outside of the male, white, middle class individual I am and look at different perspectives, views and perceptions about the issues and weigh the evidence (note not solely opinions) on any issue I professionally report on.
I think a lot of auditors become myopic, focusing on the methods, processes, rules and guidance for independence, rather than applying the way of thinking and the outcomes being independent. I have never found having a strong and robust opinion difficult as I have always set up all stakeholders to value and expect that from me. That for me, the way of independent thinking, is the unique selling point of internal audit in the organisational setting. It is one we, as a profession, should make more of.