Selecting an Effective Audit Committee
About a decade ago, while advising a local nonprofit organization (NPO), I came across an AICPA article about the importance of forming an audit committee, independent of management and having the required financial expertise. At the time I had been serving in that role for several years as a committee of one and felt it was time to move on. I held on to that article and periodically reference some of its salient points:
Success for NPOs is built on a firm foundation of fiscal accountability and governance. NPOs can access expertise in all these areas, and in the process more successfully fulfill their mission and member goals, through the knowledge and experience of well-selected audit committees.
The audit committee charter outlines committee members’ roles and responsibilities, and the level of financial experience committee members should have. NPOs should periodically review and update their audit committee charter and also consider having their audit committee members conduct a self-evaluation to gauge and improve their effectiveness.
An audit committee should meet with external auditors to monitor their services and activities to ensure that independence is maintained between the external auditor and the organization’s management team. Depending on the NPO’s size, meeting frequency ranges from one to four times per year, with meetings being held more often for larger NPOs.
An audit committee that has a proper charter communicates a message of independence, reliability and trust and builds confidence among present and potential endowment providers, trusts, top-level donors, and lenders. NPOs and their audit committees can maintain and further build on this positive message by disclosing the audit committee’s role and composition, achieving transparency in financial disclosures, and communicating the organization’s compliance and ethics policy.
The right “composition” is even more important when available resources only provide for the selection of a committee of one. The qualifications found in this individual are similar to the answer to the question “Who Should Fill the Role of the Audit Committee Chair?”.