An Online Guide: Effective Audit Committees for Nonprofit Organizations

Adopting and maintaining an audit committee is a best practice for nonprofits and is actually a requirement in some states. However, assembling a committee can be a daunting task for many organizations.  A nonprofit audit committee plays a significant role in providing counsel to governing boards so they can effectively perform their fiduciary and oversight duties. Their critical oversight ensures reliable financial reporting, reduces risk and helps maintain donor and public confidence (e.g., avoiding legal problems and preventing negative consequences that inevitably result from financial fraud or irregularities).

Whether a nonprofit organization is large or small, an audit committee can help ensure financial success while mitigating risk. Our new site poses important questions meant to serve as a guide for organizations building or maintaining their audit committee.

The WHYs: Why are audit committees so important to an organization’s overall governance, and why should a nonprofit consider forming one? Growing organizations, as well as established organizations, benefit from the experience, oversight and direction that an audit committee may provide.
The WHOs: The best audit committees are those that set the appropriate tone at the top. Who should be on the committee and who should assume the role as the financial expert and the committee chair? When evaluating whether members have the required expertise, audit committees should assess if its candidates have the capacity or background to fully grasp the issues related to the specific industry in which the nonprofit operates.
The WHATs: What is the overall mission of the audit committee (e.g., oversight, risk management, financial reporting, and auditor communication)? Furthermore, what are the specific responsibilities, activities and duties related to the audit committee? Communication is key, and processes should be designed and managed to ensure that all parties involved understand the mission of the committee and the responsibilities of serving and fulfilling a role on that committee.
The WHENs: A timeline is essential in determining when the committee should meet with management, internal audit and the independent auditors. When should this committee convene, and who should be required to attend? At minimum, it is recommended that the committee, together with management and the independent auditors, meet at least two to three times per year – at the start of the annual audit and at the end.
The HOWs: The overall success of the audit committee will be determined by the committee’s ability to evaluate how they should be governed, measure effectiveness and set expectations. By developing a formal written charter, a committee can easily document the scope of the committee’s responsibilities, how those responsibilities will be carried out and membership requirements.
As industry regulations increase, as risks rise, and as financial, economic, and ethical pressures grow, audit committees’ responsibilities widen and take on more significant roles in ensuring the health and longevity of the organizations and boards they serve.

For an in-depth discussion of the above points and more, we encourage you to refer to this site frequently as well as download the full Effective Audit Committees for Nonprofit Organizations via our website. This online tool is host to additional tools and resources including: