One of the many duties of the nonprofit board members is the fiscal responsibility of selecting an auditor and overseeing the audit process.
Many nonprofit organizations are required to get financial audits or reviews by an independent accountant on an annual basis. These requirements typically come from state law, grant requirements, or because you are expending a certain amount of federally granted revenue. But as not everyone has a background in finance or accounting, many board members may be hesitant or unqualified to participate in the audit process.
To make it easier many nonprofits will create a subcommittee to delegate tasks to qualified members of the board. Creating an effective audit committee can help the board successfully perform its fiduciary and oversight duties. This will lead to a smoother audit process, accurate financials and help donors and the public maintain confidence in the nonprofit.
Responsibilities and Roles of the Audit Committee
The main responsibilities and roles of the audit committee often include the following:
- Monitor the organization’s internal control process and assist management with drafting an accounting narrative or accounting procedures manual
- Oversee management’s compliance with applicable policies and procedures (e.g. whistle-blower policies, conflicts of interest, etc.) as well as any applicable laws or regulations
- Oversee the audit process, including hiring and communicating with the organization’s independent auditors
- Review the organization’s financial statements and other financial data presented by the auditors
- Review annual informational returns, such as the organization’s Form 990, and recommend them for approval
Who Should Be Included in Your Audit Committee?
Audit committees are ordinarily chaired by the board’s treasurer, but this doesn’t always have to be the case. Audit committee members do not even necessarily have to be board members. If a financially savvy individual is interested in contributing – but is not ready to commit to being a board member – the audit committee might be a great fit for them. The organization’s executive director and/or finance director will also usually attend audit committee meetings.
How Often Should Your Audit Committee Meet?
The audit committee should meet before an audit commences to discuss areas of concern or anything that might require further investigation during the audit. Usually, one or two committee members will then be nominated to meet directly with the external auditors. These individuals will voice the audit committee’s concerns to the auditors and gather information about the audit team’s procedures.
Once the audit has been completed, the committee should meet with the auditors to review the financial statements, ask questions, and learn about areas of improvement. Some audit committees will then share this information with the board; other committees prefer for the external auditors to present their findings to the entire board. Additional meetings throughout the year should be scheduled as needed in order to review internal control changes and to update any financial policies.
Forming an audit committee for your nonprofit organization is a great way to leverage your most qualified board members. It also helps to provide efficient communication with your external auditors, which keeps costs down. You don’t need to be a professional accountant to participate in an audit committee. A general understanding of finance and accounting is always helpful, but your auditors will make an effort to explain any complex subjects in a way that allows you to understand and take action for the benefit of your organization.
If you have any questions on qualities that auditors look for in good audit committee members feel free to reach out to our office.