What is the
Purpose of an Audit Committee?
While many
organizations may already have a finance committee in place, it is important
to remember that an audit committee has different responsibilities. While
the finance committee reviews investment policies and monitors the funds of
the organization on a regular basis, the audit committee provides
independent oversight into the organization’s accounting and financial
reporting and oversees the organization’s annual audits (both external and
internal). The audit committee may oversee a broad range of areas under the
blanket of this primary purpose. These areas include:
-
Governance
-
Ethics (View a
Sample Code of Ethics Statement here)
-
Adequacy of internal controls (i.e.
review of accounting or fiscal operations manual).
-
Compensatory reviews of executive level
staff.
-
Accuracy of records and reports
presented to the board of directors.
-
Proper authorization of activities and
expenditures.
-
Review of the tax-exempt status and
identification of activities that could jeopardize this status.
-
Protection of
employees raising concerns about serious accounting or auditing
irregularities.
Who
Serves on
an Audit
Committee?
The Board of
Directors appoints the audit committee and has the authority to remove
members at any time. The committee should consist of at least three members
of the board of directors and one financial expert. At least one member of
the committee should be able to understand and analyze the financial
statements of the organization and the overall competency level of the
auditing firm. Consideration should be given to individuals with an
expertise in finance and all members should be financially literate.
Additionally, the committee should meet at least four times annually and as
many additional times as the committee deems necessary. The committee is
required to have at least one meeting annually with the outside auditing
firm. The audit committee should ensure that the auditing firm has the
skills and experience to carry out the auditing function for the
organization, and that its performance is carefully reviewed. The audit
committee should meet with the auditor, review the annual audit, and
recommend its approval or modification to the full board.
A sample document outlining
Audit Committee Roles and Responsibilities is
available here. The specific activities of the Audit Committee are outlined
in the
audit committee checklist.
Whistle-Blower Protection and the Audit Committee
All
organizations should develop procedures for handling employee complaints,
and should establish a confidential way for employees to report any
inappropriateness within the entity’s financial management. The
Sarbanes-Oxley Act provides a sense of
protection for whistle-blowers - or those employees who risk their careers
by reporting suspected illegal activities within the organization.
Nonprofits must develop, adopt and disclose a formal process to deal with
complaints. The audit committee should take employee complaints seriously,
investigate the situation, fix any problems or justify why corrections are
not necessary.
A Sample
Whistleblower Policy is
available here.
The Administrative Professional and the
Audit Committee
What role does
the Director of Finance and Administration or the Office Manager play in all
of this? Here are a few suggestions for working efficiently with your audit
committee:
-
Be sure to provide your audit committee
with as much background information about the organization’s policies
and practices as possible.
-
Invite them to review the current
accounting/financial procedures manual, any outgoing request for
proposals when looking at new auditors, and any other policies that
affect the financial health and vitality of the organization.
-
Staff members should act as a liaison
between the audit committee and the auditors and should be willing to
provide as much background information as possible so that audit
committee members are well educated on the day-to-day issues the
organization faces.
Sarbanes-Oxley and Document Destruction Policies
Under the Sarbanes-Oxley Act, it is a crime for nonprofits to:
·
Knowingly destroy a document with the intent to obstruct or influence the
investigation or proper administration of any matter within the jurisdiction
of any department agency of the United States...or in relation to or
contemplation of such matter or case; and
·
Take action
that is harmful to any person, including interference with lawful employment
or livelihood for providing to a law enforcement officer any truthful
information relating to the commission of any Federal offence.
A
Sample Document Destruction Policy
is available here. Nonprofits should have a policy, monitor compliance and
train employees on compliance.
Sarbanes-Oxley Type Proposals in the States
In the wake of Congress’ passage of the Sarbanes-Oxley Act, many state
legislators and attorneys general have been considering various proposals to
increase non-profit accountability at the state level. Go to NCNA's State
Policy Issues page on
Oversight & Accountability to learn
more.
Inculcating
a Sense of Destiny, Dignity, Morality and Power
