An Overview of Audit Committee Responsibilities
The typical responsibilities of a nonprofit audit committee will encompass, but not be limited to the following:
Oversight of the independent audit function.The primary duties of the Committee in this area include:
– a review of the proposed scope of the annual audit with the independent auditors. The Committee can also use this opportunity to request special investigations or an expansion of the audit into areas of concern to the governing board.
– The approval of the independent auditors’ management report on the organization’s financial statement at the conclusion of the audit.
– A review of the independent auditors’ management letter that emanates from the audit, as well as management’s responses thereto.
– The recommendation to the board as to the appointment of new independent auditors, if necessary
Establishing policies and practices to prevent financial fraud. This includes a full understanding of the areas of risk as they relate to potential fraud within the organization, as well as accumulating the fraud-related findings of the independent auditors.
Ongoing understanding of the internal-control environment. The objective here is to ensure that controls are in place to provide reasonable assurance that assets are safeguarded, that transactions are authorized and properly recorded, and that the organization is in compliance with applicable laws and regulations. The Committee should have specific discussions about the control environment with both senior management and the independent auditors. The Committee should also periodically evaluate management’s compliance with the organization’s code of conduct and code of ethics.
Oversight of the financial-reporting process. The Committee should ensure that the frequency, distribution, and scope of the organization’s internal financial and accounting reports are appropriate to support management’s responsibilities for providing meaningful data and that the information contained is timely and accurate.
Budget control In cooperation with other board committees, the Committee should ascertain that the annual budgeting process relates meaningfully to the organization’s financial reporting formats,and that budgets and subsequent budget-to-actual comparisons are completed in a timely manner.