PBMares Accounting Blog

The Importance of a Nonprofit Audit Committee

Posted by Robin Lam, CPA on Apr 2, 2018 10:05:25 AM

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Transparency and accuracy of a nonprofit’s financial statements has become even more vital over the years.  Having an audit committee should be essential part of the governance structure for nonprofits. It not only enhances the Board’s oversight over the annual audit, but it will also will add another layer of oversight in your nonprofit.

What is an audit committee? 

  • The audit committee will assess the external auditor for qualifications, independence and performance.
  • The committee will also oversee for the organization’s compliance with laws and regulations.
  • The review the IRS Form 990 is another function of the audit committee.
  • The audit committee can also be responsible for monitoring the internal control activities.
  • The audit committee should not be part of the day-to-day operations.

Who would make a good member of the audit committee?

  • Usually includes at least one voting Board member
  • At least one individual with financial expertise
  • It is typical to see at least three members of the committee, although more member are always welcomed.

What does the nonprofit audit committee do?

This will vary from each organization depending on the size and complexity of the nonprofit.  Below are some tasks the committee might perform:

  • Meet with management concerning key aspects of financial statements. Understanding the estimates or rationales management used to prepare the financial statements is crucial.
  • Evaluate external auditors for qualifications to perform the annual audit and verify their independence.
  • Entrance and exit meetings with external auditor on annual audit. The external auditors should discussed the audit findings with the audit committee and the audit committee should present the audit findings to the board. 
  • Review financial policies and procedures. Examples of these may include investment and retention policies. The committee may also review standard operating procedures (SOP) to make sure key controls on in place. 
  • Review whistle-blower and fraud allegations

An audit committee is not mandatory and some boards will just assign these tasks to the entire board.  By creating an audit committee, you may find this smaller group is more practical.   A nonprofit audit committee is another step in ensuring there is independence and integrity with the annual audit. 

 

Topics: Not-for-Profits

Robin A. Lam, CPA

Robin A. Lam, CPA, is a Manager at PBMares, LLP, an accounting and consulting firm serving clients throughout the Mid-Atlantic. For more information, please contact the author at rlam@pbmares.com or visit: www.pbmares.com.

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