Is your organization considering forming an audit committee? Or if you already have a committee, is it functioning as it should?
The following checklist will give you a reading on how your audit committee (and your board) is performing. Be sure to discuss any “no” answers with the full board and management team and decide how best to remedy those gaps. If you are forming a new committee, use this list to help the group get off on the right foot.
Committee Members
Are committee members independent and objective?
Do they have strong interpersonal skills?
Do they address issues proactively and with integrity?
Are they all financially literate?
Is at least one member a financial expert with considerable experience analyzing, preparing or auditing financial statements?
If the committee doesn’t include a financial expert, has the board considered adding a CPA (someone not affiliated with the nonprofit’s audit firm) to the committee?
Committee Meetings
Does the committee meet three to six times a year?
Does management forward to the committee all relevant information — as well as information that should be added to the agenda — with plenty of time for members to review it before the meeting?
Are meetings long enough for the committee to thoroughly discuss all items on the agenda?
Communication With Management
Does the committee regularly apprise the CFO of key issues?
Does management keep the committee up-to-date on organizational changes, particularly turnover within the financial department, management team or external audit team?
Is the committee prepared to question, when necessary, management choices related to the organization’s finances and financial reporting?
Communication With the Full Board
Has the board clearly communicated to the committee its expectations of the organization’s key financial managers, including the CFO?
Does the committee provide feedback to the full board concerning the competency of key financial managers?
Does the committee report its proceedings and recommendations to the full board after each committee meeting?
Communication With Outside Auditors
Does the committee regularly schedule meetings with the independent auditors and communicate with them before, during and after the engagement?
Does the committee understand how independent and internal auditors will work together, and who will do what? Are committee members able to relay that information to both sides and to the board accurately?
And Much More…
A strong audit committee has many other components, including effective processes to orient new members, investigate allegations of financial misconduct and recommend to the board the approval or modification of the annual audit. Your nonprofit’s audit firm can help you review board best practices, as well as your state’s requirements for audit committees.
