Establishing an audit committee in your nonprofit can result in multiple benefits for your organization. The role of an audit committee can go beyond their primary functions of meeting with the external CPA firm, reviewing financial statements and going over Form 990s. The team can also provide lesser-known functions that assist your company in upholding efficient internal processes. More efficient processes can translate to better experiences for your staff, a better product being produced and overall longevity for your business.
An audit committee is one of many ways you can set your nonprofit board up for success. We broke down a few other key ways to keep your board performing at its best.
What is an audit committee?
The audit committee can serve several purposes for your organization and is just one way to ensure you have a smooth audit process. Outside of standard duties, they can help with the following activities:
How do audit committees help nonprofits?
Enforcing your whistleblower policy is just one way an audit committee can help your firm mitigate risk. A strong whistleblower strategy not only encourages speaking up but also protects staff who come forward with information on illegal practices or violations of internal policies. Your audit committee can provide a safe environment in your firm to ensure that individuals feels protected from retaliation. Implementing a whistleblower policy and a committee to enforce a protective strategy is vital to encourage staff to report any wrongdoing or malpractices they may come across.
To be effective, the reporting process must incorporate features that ensure confidentiality of those reporting their concerns. The audit committee must also ensure all employees are confident they will be protected from retaliation.
A sound whistleblower policy contains components such as the following:
Other matters to consider include:
The importance of establishing a strong whistleblower policy cannot be over-emphasized. Of equal importance, however, is the knowledge such a process exists. It is imperative that employees recognize that their concerns are being communicated and that appropriate investigative steps will be taken to resolve them. While developing your policy, consider having all employees annually sign a statement outlining that they are aware of the policy and are following established protocols.
What other things do you need to consider when it comes to the audit of your nonprofit?
What does the audit engagement timeline look like?
With respect to the annual audit engagement, the committee should follow a reasonable timeline for necessary discussion. The following outlines a suggested timeline.
Three months prior to year-end: Update the committee’s risk assessment of the organization and meet with the audit firm for discussion. At the same time, discuss the engagement timeline with management and the audit team to ensure deadlines will be met.
During the audit engagement: Monitor the timeline and any audit-related issues that arise that could affect completion of the audit engagement and preparation of Form 990. Be informed of any audit adjustments identified during the audit process that could change internal financial results reported by management.
Following engagement completion: Interview both the external audit team and management about the audit experience and any improvements that should be made to the engagement for the current year. Also, discuss whether changes to accounting or reporting standards will modify the audit or Form 990 preparation engagement. Finally, consider any recommendations from the external audit firm and discuss with management how the recommendations will be implemented.
As you can see, the role of the audit committee within the nonprofit organization is primarily one of risk oversight. The committee’s goal during interactions with both management and the external CPA is to monitor risk and assess the quality of external reporting by the organization.
A key to a successful nonprofit audit is understanding auditor rotation.
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