Checklist for an effective audit committee
Unless you’re a small nonprofit with no outside audit, it’s likely that your organization has an audit committee. No matter how long it’s been up and running, the board of directors should monitor the committee’s performance.
The audit committee’s main responsibilities are to assist the board in its oversight of the organization’s processes for financial reporting, internal controls and the audit and to see that the not-for-profit complies with applicable laws and regulations and a code of conduct. The following checklist will give you a broad reading on how your audit committee is doing — and any “no” answers will help to pinpoint areas for improvement.
- Are committee members independent of outside interests and objective about their committee decisions?
- Do they address issues proactively and with integrity and strong interpersonal skills?
- Are all committee members financially literate? Is at least one member a financial expert — that is, has considerable experience analyzing, preparing or auditing financial statements?
- If the committee doesn’t include a financial expert, has the board considered adding a CPA to the committee — someone not affiliated with the organization’s auditing firm?
- Does the committee meet three to six times a year?
- Does management forward to the committee all information that’s relevant to the agenda (or that should be added to the agenda)?
- Does it do so in plenty of time for members to review the information before the meeting?
- Are meetings long enough for the committee to thoroughly discuss all items on the agenda?
Communication with management
- Does the committee meet regularly with the CFO (and other financial team members as appropriate) to keep abreast of key issues?
- Does management keep the committee up-to-date on organizational changes, particularly turnover within the financial or management team or the external audit team?
- Does the committee know how to effectively question, when necessary, management choices related to the organization’s finances and financial reporting?
Communication with the full board
- Has the board been clear to the committee in its expectations of the organization’s key financial managers, including the CFO?
- Does the committee provide feedback to the full board concerning key financial management competency?
- Does the committee report its proceedings and recommendations to the full board after each committee meeting?
Communication with outside auditors
- Does the committee regularly schedule meetings with the independent auditors and communicate with them before, during and after the engagement?
- Does the committee understand the coordination of work between the independent and internal auditors? Are committee members able to relay that information to both sides and to the board accurately?
And much more . . .
There are many other components of a strong audit committee, including having effective processes in place to orient new committee members, investigate allegations and recommend the approval or modification of the annual audit to the board. Your CPA can review with your board best practices as well as state and national audit committee requirements.