Any board of directors has several types of committees formed. Nonprofits even have the advantage of the flexibility of board self-organization, as long as everyone still follows the rules. For example, the board can either form an audit committee or simply perform its duties through other committees, but the responsibility for auditing is clearly on the board. One of the drawbacks of nonprofits is their lack of internal controls, which means they have a clear need to form a non-profit audit committee.
Nonprofit Audit Committee Responsibilities
The deciding factor about the fate of an audit committee is the type and size of the nonprofit organization. If the organization is not large enough, the board simply engages other company employees and volunteers to perform the additional duties that the audit committee must perform. But if the company is large enough, the board forms a separate audit committee, usually inviting a third-party auditor to become the person in charge of all necessary processes. The board also determines the duration of their company’s audit work. Reports of the audit work are presented by the committee at a general board meeting, and they must answer all questions from the directors before finally approving the report. Another responsibility of the audit committee is to determine the methods and direction of the nonprofit organization in accordance with generally accepted standards.
The board of directors must form a charter for the audit committee to follow, and this charter will specify the roles, responsibilities, rights, composition, and frequency of their meetings.
Some of the duties of the audit committee include:
- Supervising the work of the temporary outside auditor
- Submitting questions to board members and the chief auditor to ensure transparency in the audit process
- Reviewing the external auditor’s report and deciding on recommendations to the board to improve certain practices, such as governance or financial reporting
Audit committee vs board of directors – relationship
Of course, the audit committee and the board of directors are closely related. The board should examine, discuss and decide based on the recommendations that the audit committee has made to them over time, and discuss the matter with the head of the committee to build solid internal controls of the organization.
Another of the audit committee’s responsibilities is to find solutions to improve internal controls and work with the board of directors, as this is one of the weaknesses of nonprofit organizations. By working on this issue, the company will be able to reduce the risk of fraud and improve financial management.
The role of the audit committee on poor financial management
In order to streamline board accountability, board members must determine who is responsible for receiving financial management complaints. Typically, this role falls to the chair of the audit committee or the committee as a whole. When a financial plan complaint or allegation is received, those responsible must examine and analyze the complaint to ultimately make a wise decision and take the proper precautions to protect the employee who filed the complaint from any kind of retaliation. The audit committee should inform the rest of the board as soon as possible of the development of the entire situation and the eventual outcome. Although very few of these situations arise in practice if they do occur, having an audit committee is very helpful. The board’s audit team helps the board achieve the desired results while maintaining order, transparency, and organized accountability.