Enron. WorldCom. TYCO. These companies forever changed the accounting landscape. As a result of the related scandals, many employees and investors lost a significant share of their accumulated wealth. Soon thereafter, the Sarbanes – Oxley Act was born. SOX, as the Act is commonly known, originated to help protect investors by increasing auditor independence, enhancing each public company’s internal controls, creating more third-party oversight, and restructuring certain aspects of corporate governance. While SOX primarily relates to public companies, the Act created best practices for all organizations – whether public companies or not.
What is an Audit Committee?
While an audit committee is not required for not-for-profit organizations, it probably should be. And it does differ from a finance committee. Whereas a finance committee reviews the organization’s periodic financial activity and provides financial oversight, an audit committee is the liaison between the independent auditors, management, and board of directors. The audit committee is a subset of the board of directors and should include at least one financial professional – a CPA, accountant, or someone familiar with the finances and economics of that industry. Only three to five members should be on the committee, and they can be volunteers. Important functions of the audit committee include:
• Selection of the auditor,
• Negotiation of auditing fees,
• Identification of significant audit and fraud risks,
• Initial planning discussions with the auditor,
• Review of the audited financial statements, and
• Review of any findings.
To accomplish these tasks, only one meeting before and after the audit is necessary.
Why Should Your Not-for-Profit Organization Have An Audit Committee?
Not-for-profit organizations are reliant upon members, donors, and grantors to survive. As such, they must be impeccable stewards of their money – or risk loss of funding. An organization with strong corporate governance that includes an audit committee demonstrates that management and the board take their responsibilities seriously. For the minimal expense and time commitment, every organization should consider creating an audit committee to further commit to its industry’s best practices.
If you have questions about how to set-up an audit committee for your not-for-profit organization, or how to streamline the structure of an existing committee, then just give the GellerRagans team a call. We are available to help you hammer out the details.
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