Redefining internal audit: the strategic move from outsourced to co-sourced models

As an internal audit recruitment specialist, I’ve seen the sector go through a significant transformation over the past decade. Once seen primarily as a compliance exercise, it now plays a central role in helping organisations strengthen governance, enhance internal controls and improve risk management across the business. Yet many organisations still rely on an outsourced internal audit model, often due to limited internal audit resources, budget constraints or the convenience of working with an external service provider.

While outsourcing can provide access to specialist skill sets, it can also create challenges. Some organisations experience reduced visibility over audit processes, limited knowledge transfer or a disconnect from culture and strategy. These issues often become more pronounced as expectations rise from the audit committee, senior management and other key stakeholders. 
 
This is why many companies are now exploring a co-sourcing model. Co-sourcing blends the strengths of an in-house internal audit team with the capabilities of an external internal audit provider, creating a flexible and modern approach to assurance. It offers access to specialist expertise in areas such as cybersecurity, data analytics, IT audits and sector specific risk, while keeping strategic control within the internal audit department.

Why the co-sourcing internal audit model is gaining traction

Co-sourcing has evolved from being a niche approach to becoming a widely adopted solution across sectors such as financial services, healthcare, professional services, real estate and private equity. They are finding it to be adaptable, collaborative and aligned to their long-term goals.

Flexibility and scalability

A co-sourced internal audit arrangement allows leaders to scale resources according to the internal audit plan. Rather than relying solely on an outsourced team, organisations can supplement their in-house team with specialist support during peak periods, mergers or areas of emerging third-party risk.

Access to specialist competencies

Modern risk landscapes require specialist competencies that can be difficult to maintain internally. A co-sourcing partner can provide auditors with certifications such as Certified Public Accountant (CPA), Certified Internal Auditor (CIA) and Certified Information Systems Auditor (CISA), alongside expertise in areas including cybersecurity, environmental, social and governance (ESG) regulation, regulatory compliance and data analytics. This helps organisations meet internal audit standards and wider professional standards supported by the Institute of Internal Auditors (IIA).

Knowledge transfer and capability building

Unlike a traditional outsourced model, co sourcing encourages the transfer of methodologies, tools and insights. Internal auditors gain exposure to new methodologies, technologies and advisory services that strengthen long term capability. Some organisations support this by investing in broader internal audit roles  to build a stronger in-house team.

Stronger ownership and oversight

Co-sourcing helps organisations retain strategic control of the internal audit activity while benefiting from external support. Internal leaders maintain responsibility for the audit plan, engagement with external auditors and relationships with the wider business. 
 
This balance enables internal audit to operate as a more strategic advisory function rather than a transactional consulting services arrangement.

Six steps to transition from outsourcing to co-sourcing

1. Assess your current state

Start by reviewing your outsourced internal audit model. Identify strengths, gaps and opportunities. Assess how effectively your existing service provider supports delivery, technology and knowledge transfer. Engage the audit committee, senior management and relevant stakeholders to align expectations.

2. Define your co-sourcing model

A co-sourcing model can be designed in several ways. Some organisations choose to co-source highly technical audits such as cybersecurity or regulatory reviews, while keeping operational audits in-house. Others prefer a blended model across the entire annual plan. The right approach depends on your internal audit resources, skill gaps and long-term objectives for the internal audit function.

3. Select the right partner

Selecting the right external provider is critical. Look for an internal audit services partner with strong industry expertise, established member firms, tested methodologies and a collaborative mindset. The best partners work as an extension of your internal audit team rather than a standalone group delivering isolated reports.

4. Establish governance and protocols

Clear governance ensures independence, consistency and audit quality. Define reporting lines, escalation pathways, confidentiality requirements and technology protocols. Aligning audit processes and documentation approaches helps streamline delivery and supports consistency across the team. Co sourcing should also remain aligned with broader risk expertise across the business.

5. Communicate and upskill

Shifting from outsourcing to co-sourcing requires transparent communication. Reassure audit staff that co sourcing is designed to strengthen capability, not replace it. Use shadowing, joint fieldwork and training delivered by the external provider to upskill internal auditors and broaden their exposure.

6. Measure success and adapt

Define KPIs that reflect the aims of your co sourcing arrangements, including quality of delivery, timeliness, cost efficiency, knowledge transfer and alignment with internal audit standards. Review performance regularly to ensure the model remains flexible and continues to support organisational priorities.

Governance, risk and quality considerations

While co-sourcing offers many benefits, organisations should remain mindful of key governance requirements.

• Independence: External auditors and internal auditors must maintain objectivity, particularly when working closely together.
• Data security and confidentiality: Ensure that technology platforms, confidentiality agreements and protocols for handling sensitive information meet both internal and external expectations.
• Alignment with wider governance structures: Integrate co sourcing into broader governance and risk management frameworks to maintain consistency and avoid duplication across the organisation.

The benefits of a co-sourced internal audit model

Across industries including financial services, healthcare, professional services and real estate, organisations adopting co-sourcing have reported improvements such as:

• Higher audit quality through access to specialist skills
• Cost flexibility by paying only for targeted competencies
• Greater transparency for the audit committee and senior management
• A fresh perspective on emerging risks and audit priorities
• Stronger in-house capability due to shared methodologies and training
• More streamlined delivery supported by modern analytics and audit technologies

If you are considering a shift to co-sourcing, start by asking: what does our internal audit function need to achieve over the next three years? The answer will help you design a co-sourcing model that supports your goals, strengthens governance and delivers long term value.