Quash Anxiety While Navigating Audit Committees
Is your leadership team in a constant struggle to address the evolving nature of your board’s fiduciary responsibilities? You're not alone. COA gets a lot of questions from organizations having difficulties grasping the scope of their governing body’s activities around financial audits, and specifically, the role of an audit committee. Audit committee members often feel anxiety about the magnitude of their roles and question whether they are addressing the most relevant topics, prioritizing them appropriately and devoting the necessary level of attention.
With very few exceptions organizations seeking COA accreditation must periodically hire an outside auditor to conduct an audit of their financial statements. Management of the audit process is the responsibility of the governing body. And to ensure that the audit is conducted in a way that is free of potential conflicts of interest, the governing body must establish an independent audit committee, that, ideally, is separate from its finance committee. Staff members, including the CEO and CFO, cannot sit on the audit committee.
What is the role of the audit committee?
In very broad terms, the audit committee:
- Oversees the integrity of the organization’s financial management system and financial reporting.
- Ensures the independence of the annual audit, and that internal controls are in place to prevent or detect financial mismanagement or fraud.
- Selects the auditor.
- Meets privately with the auditor to review the findings of the audit.
- Reports the findings of the audit and any recommendations to the full governing body.
- Assures that the organization's CEO promptly acts on the auditor's recommendations contained in the management letter.
There's an overwhelming amount of information about audit committees out there, and figuring out which to read is a challenge in itself. Look no further; we scoured the Internet to find the very best guidance that will provide you with an in-depth understanding of audit committees and how they work.
Please note that these recommendations should not be understood as formal endorsements by COA.
$35 ($25 for AICPA members)
WHY IT'S GREAT
In my opinion, the 3rd Edition of the American Institute of Certified Public Accountants' (AICPA) publication, The AICPA Audit Committee Toolkit: Not-For-Profit Entities is probably the single best resource available. It is also very comprehensive and written for the an advanced audience. While not free, at $35 for non-AICPA members, and $25 for members, the toolkit is very reasonably priced, and includes downloadable tools and checklists.
WHY IT'S GREAT
Another great resource is Effective Audit Committees for Nonprofit Organizations, published online by BDO, USA, LLP. This comprehensive free 60 page document (including almost 30 pages of appendices) covers everything you ever wanted to know about nonprofit audit committees. It is organized into chapters titled The Whys, The Whos, The When, The Wheres, and the Hows, with each section divided into related questions and answers, such as: Why are audit committees so important to an organization’s overall governance?, What is the audit committee’s role in the prevention?, deterrence and detection of fraud, and How does one maximize the benefits in conducting audit committee meetings? Useful appendices include, but by no means are limited to: Model Audit Committee Meeting Agendas, Sample Audit Committee Questions to Ask of Auditors and Management, Signs Which May Indicate Financial Trouble For Nonprofit, and an Audit Committee Self‐Assessment.
WHY IT'S GREAT
Another excellent general resource is the Audit Guide for Audit Committees of Small Nonprofit Organizations published by the Virginia Society of Certified Public Accountants and available for free download. Although pitched to nonprofits operating in the State of Virginia (there is a section on applicable Virginia state law) it packs a lot of useful information into its seven pages, including a nicely succinct discussion on internal controls.
Okay, your turn!
I’d really like to know what resource(s) your organization has found helpful in developing your board's audit committee. Did you use any of the resources I listed above? Do you have any specific advice for navigating audit committees? Please leave a comment below and let me know.