Thursday, April 19, 2012
Audit Committees: Roles & Responsibilities
Posted by Armanino Nonprofit Team
Does your not-for-profit organization (“NPO”) have an audit committee? NPOs subject to the Non Profit Integrity Act (SB1262) are required to have an audit committee. The establishment of audit committees has become more common for NPOs because of SB1262, but also for NPOs not subject to SB1262 who are looking for individuals to assist in the oversight and governance of their financial reporting. It is important for your organization to consider forming an audit committee or a committee with equivalent responsibilities if your organization is audited or will be audited.
An audit committee is responsible for the organization’s financial integrity and thus should be made up of directors who are independent of management of the entity. Officers and employees of the entity should not be members of the audit committee, although they should attend audit committee meetings as requested.
Some of the roles and responsibilities of an audit committee are to oversee the following areas:
•The entity’s financial data
•The external audit process and the communication with the entity’s external auditors, including review of the annual audited financial statements
•The adequacy of the entity’s internal control over financial reporting and to ensure that the internal control systems of the NPO are appropriately documented. The audit committee should focus on the procedures and controls surrounding high-risk areas such as donations, travel & entertainment, professional/consulting fees and executive compensation
•The entity’s compliance with legal and regulatory requirements
How often should an audit committee meet? This is dependent on how frequently financial statements are issued, but audit committees should typically meet at least twice a year (once before the audit to discuss pre-audit plans and again after the audit to discuss the annual audited financial statements and communications received from the external auditors).
Are you interested in learning more about audit committee best practices? If so, please contact us, we’re here to help!
Nonprofit organizations have specialized audit, tax and operational needs that require specialized service. Armanino has been committed to the nonprofit sector since 1953, and we now work with more than 500 nonprofit clients. This hands-on experience gives our staff of CPAs and former CFOs a deeper understanding of the issues nonprofits face, so we’re able to meet their needs and help them fulfill their missions in the most efficient, cost-effective way possible.