Audit committees and their members have a critical role in many aspects of a nonprofit’s activities and performance. The audit committee provides oversight to help maintain the organization’s integrity, financial credibility, and ensure independence through the audit process. The audit committee has been given the responsibility of providing accountability for the nonprofit’s independent audit by the board of directors. The audit committee oversees the independent audit process, which may include hiring and evaluating the independent auditor.
Audit committees are not mandatory but allow for the Board of Directors to engage volunteers in a unique way. The audit committee will include board members but may also have additional volunteers. Even if a board of directors does not have an official audit committee, it is a best practice to review the organization’s financial practices, the independence of the auditor, and avoid any conflicts of interest to the integrity of the financial statements.
The audit committee should have knowledge of the business and finance activities, compliance issues, and internal controls of the organization, as well as the the ability to read and interpret financial statements. One or more members of the audit committee should be a financial expert, possessing professional knowledge of financial reporting. Creating a committee of members who actively listen, engage with healthy skepticism, and challenge each other is invaluable to the committee as they evaluate and develop policies and procedures for financial practices of the organization.
While management is responsible for maintaining and ensuring compliance with the Organization’s internal controls and practices, the audit committee is responsible for understanding and providing oversight for the design and implementation of these items and helps ensure recommendations made by the auditor are implemented.
Some important meetings for the committee are the pre-audit and post-audit meetings. During the pre-audit meeting, the external auditor should review with the committee their workplan and set expectations for the upcoming work. This meeting would set a timeline and review the areas for greatest examination. The committee can express any concerns they have at this time, which the auditor can evaluate for inclusion in their work. The committee will also review and approve costs of the audit and any additional work suggested.
The post-audit meeting is held after the auditors have completed their fieldwork. The auditors will present their audit results including financial statements, supplemental financial information, and audit reports for review and discussion. External Auditors’ professional standards require that they communicate to the audit committee: the auditors’ responsibility under GAAP, significant accounting policies, management judgments and accounting estimates, significant audit adjustments made, responsibility of other information in documents containing audited financial statements, disagreement with management, consultations with other accountants, major issues discussed with management prior to retention, and difficulties encountered in performing the audit.
The role of the audit committee is important in maintaining the trust of the public through its oversight and supervision of the financial information of the Organization.
Please contact the Not-for-Profit Niche team at Gilliam Bell Moser LLP for further guidance.
