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Authored by Laurie Horvath
A key responsibility of the board of directors is fiduciary oversight, including overseeing financial performance, accounting functions and the engagement and retention of independent auditors. Like other board responsibilities, these obligations are often delegated to a committee.
Traditionally, a board appoints a finance committee to oversee financial results, cash management, performance against budget and financial risk assessment. These are critical roles and require robust involvement of the organization’s financial and accounting staff members.
But what about an audit committee?
Separately, the board is responsible for engaging independent auditors and overseeing the audit process and filing of related tax returns. An audit committee is accountable for the organization’s independent audit. As the audit committee is separate from the finance committee and is not involved in accounting oversight or performance, it is independent and better equipped to distinctively supervise the hiring and evaluation of independent auditors, review and respond to the audited financial statements and evaluate and ensure tax returns and related documents are filed on time. An additional common function of the audit committee is to help the board execute responsibilities around board independence and conflict of interest (COI).
Oftentimes, the independent audit communication will involve the reporting of accounting weaknesses or control issues to the audit committee. An audit committee is positioned to ensure the board responds to these recommendations in an effective and timely manner. Keeping this responsibility separate from the committee entrenched in daily accounting tasks is a great way to avoid conflicting objectives.
Another audit committee function is to oversee any financial mismanagement allegations communicated through a whistleblower or other communication chain. Identifying an audit committee or audit committee chairperson as part of the organization’s whistleblower policy can be a positive addition to ensure proper disposition of any complaints around fiscal irregularities or mismanagement.
It is important to note that the audit committee is often a smaller group of the board. To avert any potential conflicts, volunteers should not serve on both the audit and finance committees. Traditionally, not-for-profit audit committees only meet two or three times per year, in a cadence that follows the fiscal year.
For more information, or to learn more about how Baker Tilly's not-for-profit team can help your organization with board and audit committee governance, contact our team.
