1. Co-Sourcing and Outsourcing of the Internal Audit Function
Roundtable Discussion of Strategic Alternatives
October 23, 2008

2. Today’s Discussion Emerging role of Internal Audit
Success factors and reason to source
Internal Audit sourcing alternatives
Business Cases
About Jefferson Wells
Q & A

3. Emerging Role of Internal Audit

4. Emerging Role of Internal Audit
Governance structure, functional committee set up, policy setting
management of business risk and Participate of strategic planning
Information Protection, accounting and operations control

5. Success Factors and Reasons to Source

6. Success Factors
“Sourcing” Internal Audit works well when the following
conditions exist:
The mission is clearly articulated and objectives are mutually agreed upon
Internal Audit is considered important
Budget constraints drive need for flexibility
Rapid changes in the business
Turnover limits in-house resources
Specialized skills are necessary
Technology enhancements drive efficiency
Geographically disbursed operations
The investment is reasonable
Teaming approach

7. Why Leading Organizations Are Sourcing
Allows management to focus on core competencies
To acquire needed skills
Subject matter or Systems expertise
Geographic needs
Innovative approaches
Need for flexibility regarding cost structure – variable vs. fixed cost
Lower net cost, i.e., “value for money”
Access to technology/knowledge repositories
Talent Attraction / Retention / Total Life Cycle Hiring Costs

8. Internal Audit Sourcing Alternatives

9. Sourcing Continuum – Sourcing Alternatives

10. Full In-House Model Benefits Concerns
Highest degree of control over Internal Audit function
High sense of organization connectivity
Knowledge of the company, processes and people
Traditional structure for Board and management
In-house talent training ground
New hires bring new expertise
Concerns
Internal Audit not a core competency
Static resource model
Requires high level of management time and attention
Inability to own specialized resources
Increasing stakeholder expectations
Investments necessary to redirect the function
Continuous recruiting, training, methodology and technology investments
Highest “fixed cost” model

11. Co-Sourcing Model Benefits Concerns
Functional control remains in-house
Rapid response to needs and issues
Allows management to focus on core competencies
Access to specialized resources
Eliminates certain recruiting, training and employment costs
Cost flexibility via “as needed” resources (variable vs. fixed cost)
Access to service provider’s best practices and technologies
Geographic coverage with reduced travel costs
Overcomes scarcity of qualified resources in the market
Ability to terminate the relationship
Concerns
Provider’s organization and industry knowledge
Possible poor cultural fit
Shift from managing a department to managing a relationship
Dependent upon strong Chief Internal Audit Executive
Staff continuity
Certain overhead and support costs remain

12. Full Outsourcing Model
Benefits
Highly cost-effective option
Allows management to focus on core competencies
Provider “owns” human resources
Provider is responsible for day-to-day administration of the function and execution
Client controls risk assessment and audit plan
Cost and skill set flexibility
Highly specialized skill sets on as- needed basis
Global resource pool
State of the art technology/ knowledge sharing
Concerns
Comfort level of Board of Directors
Knowledge of organization and industry
Possible poor cultural fit
Management must “own” all strategic decisions
Internal Audit may have less in-house linkage
Model may need to be adjusted to provide a source of executive talent
Difficulty in re-establishing in-house function

13. Business Cases

14. We provided & the Results
Our Success Stories
Client background
Needs
We provided & the Results
A NASDAQ listed company specializing in the production of precision metal with annual turnover of US$421 million.
The client required a co-sourcing audit arrangement to execute their Asia-Pacific Audit Program. They were experiencing high levels of staff turn-over and high costs associated with the recruitment, retention and training of IA staff.
Co-sourcing IA structure where Jefferson Wells assists in planning and supports the execution of Asia-pacific audit program. We provided experienced auditors to supplement the audit team to perform both IA and SOX audits. This allowed the company to better retain the current audit staffing levels while minimizing on-going audit costs.
A NYSE listed company specializing in filtration, separations and purifications technology with annual turnover of US$2.6 billion
The group outsource its SOX testing to Jefferson Wells on a global basis. In Asia, Hong Kong Office is responsible for the SOX testing in Japan.
The Hong Kong Office team up with the colleagues of our Japan Office and we conduct the testing in a timely and professional manner.
With the participation of our native Japanese speaking team member, the language barrier between the local client and audit team is avoided.

15. We provided & the Results
Our Success Stories
Client background
Needs
We provided & the Results
An innovate Fortune 500 specialty chemical company with manufacturing facilities in 20 countries and annual turnover of US$4 billion
Following an acquisition, the client found it lacked the right kind of internal audit resources to meet the needs of its newly expanded organization, specifically, the professional with sufficient domestic and international knowledge and expertise to employ a risk- based internal audit approach and methodology across the organization.
We developed and implemented a risk- based internal audit strategy, which provided assurance to the company’s Audit Committee and Board of Directors on the adequacy of internal controls in existing and new business units.
With the implementation of new risk- based internal control strategy and methodology, the client’s internal audit department now has a balanced approach to SOX compliance and a proven process for performing internal audits in a period of significant growth.

16. About Jefferson Wells

17. About Jefferson Wells
Founded in 1995 as Audit Force, to be credible alternative to Big 6 firms for Internal Audit Services
Name changed to Jefferson Wells in Initial concept expanded to include Finance and Accounting, Technology Risk Management, and Tax
Company acquired by Manpower in 2001, to be run as a wholly owned subsidiary
At present, professionals based out of 54 offices located in 9 countries around the world.
Average experience level is almost 18 years; minimum experience level is 5 years
To date, we have served more than 4700 clients (including 50% of Fortune500) and performed work in 30+ countries

18. About Jefferson Wells Asia
Hong Kong office was set up in 2007 as regional hub
Current client engagements include locations in Hong Kong, China, South Korea and Japan
Regional industry experience include banking, insurance, high-tech, professional services, automotive, manufacturing, consumer products
Main focus in Finance Operations and Internal Audit & Controls Solutions
Existing capabilities include, but not limited to, the following:
Internal Audit Outsource/Co-source
Contract compliance & cost recovery audits
SOX compliance
Regulatory compliance
Policies & procedures development
Financial process improvement
Shared services center
Interim professional
Investment accounting
Project management
Accounts reconciliation

19. Jefferson Wells Model
No attestation work – avoids conflicts of interest
Hire only Experienced Professionals – no trainees
Salaried Professionals with deep industry and/or public accounting backgrounds
Extensive skill sets and cross-functional abilities
High Value Proposition
Flat, local, team based business model with no partnership overhead
Highly competitive rates representing superior “value for money”
Enterprise wide sharing of knowledge/best practices
Focus on client needs – and client success
Results-Driven
Executing on our business model leads to positive references and additional business opportunities

20. Questions/Discussion