Mar 03 What Does Being On An Audit Committee Really Mean?
You have been asked to volunteer on a board for an organization and be a part of their audit committee. Do you accept? What responsibilities come along with being on the board and audit committee? How do you know if it is the right fit for you?
The board as a whole has the responsibility to oversee the policies and practices that an organization has in place. The board may elect to form sub-committees to carry out specific objectives, such as a fundraising committee or audit committee, which allows for a more manageable environment to accomplish those objectives
An audit committee is a group of board members who are responsible for overseeing the quality and integrity of an organization’s accounting and financial reporting practices. Some organizations have a finance committee in addition to an audit committee, and each has designated responsibilities to carry out. In order to create a governance structure of accountability, there needs to be board oversight for the audit function, but an audit committee is not mandatory if there is a finance committee or other committee in place. Audit committee members must be independent of organization management to allow them to make unbiased decisions when it comes to the organization, its financial reporting, and its employees. Areas that an audit committee should focus on include: internal control, financial statements, compliance requirements, and audits (both internal and external.)
Understanding the organization’s financial health and the internal controls in place to ensure that transactions are appropriately captured is an integral part of the audit committee. The audit committee often engages the external CPA firm to perform a financial statement audit, and the firm would report directly to the audit committee. Working with the external auditors to review and understand any recommendations to the internal control structure or financial reporting process would benefit the organization greatly. Proper internal controls have the correct levels of review for the organization’s size to ensure that errors or fraud will not go unnoticed. The audit committee should have regular meetings with the external CPA firm, review the audit results, and recommend any policy changes to the entire board for approval if the committee does not have full authority.
It is also good practice for the audit committee to regularly meet with members of the organization’s finance team. Not just to review financial reports and information but to also understand the processes in place to produce the financial information. Committee members should also be aware of compliance requirements applicable to their organization. Many non-profit organizations are grant-funded and have to comply with Uniform Guidance requirements and comply with the Health Insurance Portability and Accountability Act (HIPAA).
The Nonprofit Revitalization Act of 2013, effective July 1, 2014, was designed to reform the governance requirements over non-profit organizations in the state of New York. The Act addresses items such as compensation, conflict of interest policies, mandatory whistleblower policy requirements, and board or audit committee oversight guidelines. A whistleblower policy is when an employee can give an anonymous complaint about financial mismanagement. Organizations are always encouraged to have such a policy in place. An audit committee is often responsible for receiving whistleblower complaints and investigating them accordingly.
Even if your organization is not registered in New York, the Act gives a number of examples of good governance practices that should be considered by an organization’s board or audit committee. Consider these best governance practices at your next board or audit committee meeting to ensure the organization has the best policies and practices in place over financial reporting and compliance.
About the Author
April Kushner, CPA
April was named Partner at Sax in 2022 and is a key member of the firm’s Not-for-Profit Practice. Since joining the firm in 2006, April has worked with clients in a variety of different industries but has a passion for working with not-for-profit organizations and helping them overcome the challenges they face. She has years of experience auditing and reviewing various types of not-for-profits, such as religious organizations, membership organizations, and social service organizations. April’s expertise includes federal and state grant compliance and Uniform Guidance requirements from a wide variety of government agencies that fund not-for-profits. She frequently advises not-for-profit board members and executives on variety of accounting topics, including recommendations for improving their organizations’ internal controls and reporting. Within the firm, April plays a vital role in training members of the firm’s Not-for-Profit Practice to ensure they are knowledgeable about industry changes and challenges not-for-profit organizations are facing.
April is a Certified Public Accountant in New Jersey.