Of course they're allowed to do that, it's far less risky than hiring someone they've never seen before.
Also promoting someone who's been working hard to prove themselves to the company should really be given the position, although I agree they should have looked at that first then advertised for external applications.
My Mum recently had this problem. She's been with her company for 10+ years and she was perfect for the job they were advertising, but they found someone outside that fitted the position too. The fact that they didn't even ask for internal applications made a lot of people very angry.
Also promoting someone who's been working hard to prove themselves to the company should really be given the position, although I agree they should have looked at that first then advertised for external applications.
My Mum recently had this problem. She's been with her company for 10+ years and she was perfect for the job they were advertising, but they found someone outside that fitted the position too. The fact that they didn't even ask for internal applications made a lot of people very angry.
Yeah they definitely shouldn't bother advertising externally until they're sure there's no one internal that can fill it. It costs so much less too! Can't wait 'til I get these sort of problems when I have to look for a job 
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Bloody annoying when this happens. Don't think there is much you can do about it tbh, except be annoyed and try and find something else.