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Build a better nonprofit audit committee

July 21, 2016


Audit committees may seem like just one more layer of bureaucracy, but they’re rapidly becoming a not-for-profit best practice. Yet to ensure an effective audit committee, both your organization and its audit committee members must fully comprehend their roles and responsibilities.

Understand the job

An audit committee is the arm of the board of directors that assures proper financial management. As such, it’s an integral part of good governance. The committee’s job largely comes down to oversight, which is usually focused on:

•    Financial reporting,
•    External and internal audit functions,
•    Compliance with legal and regulatory requirements, and
•    The internal controls over these areas.

An effective audit committee can lead to improved financial practices and reporting, reduced fraud and enhanced internal and external audits. Note that audit committee functions are different from finance committee responsibilities, which typically include monitoring the budget and approving the distribution of financial resources.

Manage financial reporting

Overseeing financial reporting is a major and important aspect of the job. On a practical level, financial reporting oversight translates to:

•    Reviewing Forms 990 and reporting to regulatory agencies,
•    Looking for red flags in financial statements that might signal improper revenue recognition or other kinds of fraud,
•    Reviewing audit results, the nonprofit’s responses and follow-up actions, and
•    Evaluating the appropriateness of getting a second opinion on auditing issues.

Performance of these duties requires the audit committee to regularly interact with internal and external auditors, which includes approving the annual internal audit plan and reviewing internal auditors’ reports. The committee also may be responsible for approving the appointment of the head of internal audit.

Additionally, the committee is responsible for hiring, compensating and overseeing external auditors. It should have regular communications with the auditors, including meetings to discuss a workplan before the audit and to review any findings before they’re presented to the board.

Only a start

This is only a brief outline of nonprofit audit committee duties. To establish an audit committee or help ensure your committee is operating as it should be, please contact us.

© 2016

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.


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