Outsourced vs In-House Internal Audit: Which Is Right for Your SME?

As your business grows, the need for proper financial oversight becomes unavoidable. The question is not whether you need internal audit — it is how to get it. For Nigerian SMEs, the choice typically comes down to two options: hiring an in-house internal auditor or engaging an external firm to provide the function on an outsourced basis.

Both approaches have genuine advantages. The right choice depends on your business size, complexity, budget, and specific needs.

The Case for In-House Internal Audit

Having an internal auditor on your payroll means you have someone dedicated exclusively to your business. They learn your operations intimately, build relationships with your team, and are available whenever you need them.

An in-house internal auditor can conduct continuous monitoring rather than periodic reviews. They attend management meetings, observe daily operations, and develop a deep understanding of your business risks. Over time, this institutional knowledge becomes valuable.

For larger SMEs — those with annual revenues above one billion naira, multiple locations, or complex operations — an in-house function may be justified. At that scale, there is usually enough audit work to keep a full-time professional busy, and the ongoing nature of the oversight provides real value.

The Challenges of In-House

However, the in-house approach comes with significant challenges for most SMEs. First, cost. A qualified internal auditor in Lagos commands a salary of three to six million naira annually, plus benefits, training, and management time. For a business with revenues under five hundred million naira, this is a substantial fixed overhead.

Second, independence. An internal auditor who reports to the finance manager — and depends on the company for their salary and career progression — faces inherent pressures that can compromise objectivity. Will they flag issues involving senior colleagues? Will they report findings that the managing director does not want to hear?

Third, capability. A single auditor brings one perspective, one skill set, and one set of experiences. If your business faces a specialist challenge — say, an inventory fraud investigation or a complex financial systems review — your in-house auditor may not have the expertise required.

The Case for Outsourced Internal Audit

Outsourcing your internal audit function to an experienced consulting firm addresses many of these challenges. You get access to a team of professionals with diverse skills and experience across multiple industries and clients. You get genuine independence — the external firm has no internal political pressures and no career incentives to soften their findings.

The cost structure is typically more attractive for SMEs. Instead of a permanent salary, you pay a monthly or quarterly retainer that reflects the actual volume of work required. For most SMEs, this works out to a fraction of the cost of a full-time hire.

Outsourced internal audit also provides scalability. During routine periods, you might need a few days of audit work per month. During a system implementation, business acquisition, or suspected fraud investigation, you can scale up quickly without recruiting additional permanent staff.

The Challenges of Outsourcing

The outsourced model is not without limitations. The external team will never know your business as intimately as a full-time employee. There may be scheduling constraints, especially if the firm serves multiple clients. And the periodic nature of visits means that some issues may not be identified as quickly as they would with continuous in-house monitoring.

A Practical Recommendation

For the majority of Nigerian SMEs — particularly those with annual revenues between fifty million and one billion naira — outsourced internal audit provides the best balance of cost, expertise, and independence. It gives you professional-grade financial oversight without the fixed cost and management burden of an in-house function.

The key to making outsourcing work is choosing the right partner. Look for a firm with specific experience in your industry, a track record with businesses of similar size and complexity, and a principal consultant with senior-level experience from a reputable audit firm. The quality of the people doing the work matters far more than the brand name on the proposal.

As your business grows, you can always transition to an in-house function — or adopt a hybrid model where you have an in-house coordinator supported by external specialists. The important thing is to start somewhere. The SMEs that wait until they can afford a perfect solution often wait too long, and the cost of that delay is measured in undetected losses and missed opportunities.