Topics: Internal audit, Auditing, Employment Pages: 42 (14327 words) Published: April 24, 2013
Phenomenon of Interest
“Though varying in intensity with the ups and downs of economic cycles, voluntary turnover persists as an important concern for managers” (Holtom & Inderrieden, 2006, p. 435). The most important asset of organizations is human resources. Human capital is the primary determinant of productivity; therefore, voluntary turnover of employees reduces productivity (Dess & Shaw, 2001). When internal auditor turnover occurs it amounts to loss of critical knowledge about the company, especially, when the turnover is voluntary and external. Turnover can be voluntary as in the case when an employee resigns out of his own volition to pursue new opportunities with another company. On the other hand, involuntary turnover is due to an employer terminating an employee’s employment. Voluntary turnover can be classified into two types, external and internal. External voluntary turnover occurs when an employee resigns, out of his or her own volition, to work for another organization. However, internal voluntary turnover occurs when an employee leaves one department, out of his or her own volition, to work for another department within the same company. According to Stovel and Bontis (2002), employee turnover can also be classified in terms of functional and dysfunctional. Functional turnover occurs when good performers stay and bad performers leave, whereas dysfunctional turnover occurs when bad performers stay and good performers leave. The focus of this research is on external voluntary turnover. This is a phenomenon that business managers desperately seek to control to prevent dysfunctional turnover and ensure maximization of the return on human capital assets of the organization. According to the Institute of Internal Auditors (IIA), “Internal Auditing is an independent objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes” (Protiviti Independent Risk Consulting, 2004b, p. 11). The definition of internal audit indicates that it involves a consulting activity, which requires extensive knowledge of finance, management, and the system of operation of the company concerned. Voluntary turnover of highly skilled employees, who hold organization-specific knowledge, constitute knowledge drain for the organization (Carmeli & Weisberg, 2006). Therefore, when an experienced auditor with a record of good audit performance leaves, it is a costly loss for the company. Employee retention skills are critical core competency for managers because the financial impact of turnover can be up to 200 percent of departing person’s salary (Helpert, 2006). The direct costs of employee turnover includes: separation and severance cost, recruitment and selection cost, and hiring and training cost; the indirect costs includes lost productivity due to existence of a vacancy, deterioration of employee morale, and breakdown of team chemistry (Gustafson, 2001). Employee turnover costs could also be classified into pre-departure, departure, post-departure, and replacement costs (Moody, 2000). The cost of turnover of an internal auditor includes both tangible and intangible costs relating to separation of the outgoing auditor and the replacement cost for the new auditor. Focus of the Research

The main focus of this study is to identify the major variables relevant to the voluntary external turnover of internal auditors. “Identifying the antecedent conditions to turnover is important for understanding, and thus, controlling it” (Vandenberg and Nelson, 1999). When turnover rate of internal auditors is high, top management will need to know the reasons for the inability to retain internal audit staff. Proper use of such knowledge is important to promote internal audit staff...
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