Board’s Role & Audit Committees

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As part of its fiduciary responsibilities to the nonprofit, the board is responsible for oversight of the charitable nonprofit’s accounting functions and the performance of the independent auditor if one is hired. The board of directors as a whole is responsible, unless it delegates this authority, such as to an audit committee.

What is an audit committee?  

An audit committee is either a task force or a standing committee that has been given authority by the board of directors to provide accountabiilty for the nonprofit's independent audit. While the full board retains oversight authority, the audit committee’s smaller size allows it to carry out its responsibilities in a more manageable environment. The committee is not involved in the nonprofit’s daily accounting functions, but instead oversees the independent audit process which often entails hiring and evaluating the independent auditor(s). Where applicable, the audit committee may also be the body that is accountable to make sure that revisions or recommendations made by the auditor, such as about the organization’s internal controls, are indeed implemented. The audit committee may also serve as the “ombudsperson” for the nonprofit, and if so, would be specifically charged with the responsibility to address complaints about financial mismanagement, and may be identified in the nonprofit’s Whistleblower Policy as having the board-delegated authority to review complaints about financial mismanagement.

To ensure that the audit process is objective, an audit committee should be an "independent" body, meaning that no one on the audit committee is also employed by the nonprofit (or the audit firm). Such independence frees the audit committee to make unbiased judgments about internal financial procedures and the performance of the nonprofit's staff - as well as the performance of the auditors - without undue pressure that would exist if the members of the audit committee were employees of the nonprofit (or the audit firm).

Should all nonprofits have an audit committee?

In order to create a governance structure of accountability, there needs to be board oversight for the audit function, but an audit committee is not mandatory. It is fine to use another committee, such as the executive committee, to provide oversight for the independent audit process. Some boards assign oversight for the audit to the full board, although larger boards may find that managing the audit process through more than three or so people is simply unwieldy, and that authorizing a smaller group to focus on the audit process is more practical. An alternative to using a standing committee, such as an audit committee, is to convene an “audit task force” that may choose to meet only when necessary, and may also disband and reassemble annually, as needed. As with an audit committee, no members of a task force assigned to oversee the audit should be employed by the nonprofit.

Regardless of whether an audit committee is used, all charitable nonprofits should review their practices to ensure that there is independence in the oversight of the auditor(s). The primary goal of the audit process is to demonstrate financial integrity, so ensuring auditor independence and avoiding conflicts of interest should always be at the forefront when structuring the oversight committee and delegating authority for the audit.

What does an audit committee do?
Organizing an audit committee
What is the difference between an audit committee and the finance committee?

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