• Effective Audit Committee Guide

Nonprofit organizations face an increasingly challenging economic and regulatory environment. As giving practices continue to evolve, nonprofits often find themselves doing more with less. Adjusting to these new realities means that proper financial management is more important than ever. If mismanaged, the various tax and accounting considerations that are part of the annual nonprofit life cycle can become obstacles to an organization’s mission and goals. Audit committees are vital to the health of any nonprofit, be it large or small. Audit committee and its individual members are crucial partners in the safeguarding of integrity, purpose, and ultimately, success.

BDO’s Nonprofit & Education Practice and the BDO Institute for Nonprofit Excellence℠ have long been dedicated to client service, and to furthering the resources and discourse surrounding nonprofit financial management. With this guide, Effective Audit Committees for Nonprofit Organizations, BDO’s nonprofit professionals offer a comprehensive overview of the responsibilities of an audit committee, along with advice and tools to help organizations build or improve their own audit committees. We encourage you to refer to this guide frequently as you consider your organization’s financial needs and progress.

“The independent audit committee fulfills a vital role in … governance. The audit committee can be a critical component ensuring quality reporting and controls, as well as the proper identification and management of risk… Its critical role as guardian of … integrity puts the audit committee at the core of the challenge of governance.”
- Report of the National Association of Corporate Directors Blue Ribbon Commission on Audit Committees


While the preceding quotation was written in a business context, a well-functioning audit committee is important to every nonprofit organization as well – for the very same reasons noted. Adopting and maintaining an audit committee is a best practice for nonprofit organizations and is actually required by some states.

Effective audit committees are not merely formalities to receive lip service. They can be of significant help to governing boards in effectively performing their fiduciary and oversight roles in ensuring reliable financial reporting, reducing risk, and maintaining donor and public confidence (e.g., avoiding legal problems and preventing the negative consequences that inevitably result from financial fraud or irregularities).

This guide, Effective Audit Committees for Nonprofit Organizations, incorporates many specific recommendations, guidelines and rules of governmental and private sector bodies concerned with such matters. Its purpose is to provide you with an overview of the common functions and responsibilities of an audit committee to help you and your nonprofit organization: (1) form and maintain an effective audit committee and (2) set an appropriate agenda for its ongoing activities. However, your organization’s specific circumstances, as well as the distinctive nature of the relationships among the audit committee, organization management, leadership volunteers, internal auditors (if you have them) and outside professionals, should dictate the role of your audit committee.

This booklet is intended for use by all types and sizes of nonprofit organizations. However, it recognizes that smaller organizations may not need as extensive a set of procedures as a larger or more complex organization. For example, some organizations may find that their finance committee can also function effectively as an audit committee, or you may conclude that less extensive responsibilities or fewer meetings per year are adequate for your needs. What is important is not the form, but the substance. On the other hand, large or complex nonprofit organizations are every bit as challenging to manage and govern effectively as are large businesses, and these organizations need the full range of audit committee functions described herein.

In several places reference is made to internal auditors, which, it is recognized are probably found only in larger organizations; smaller organizations may want to have some internal auditor functions performed by the audit committee, the finance committee, members of management or the governing board, members or other volunteers. Each organization should decide what method will best serve its needs.
To ensure compliance with Treasury Department regulations, we wish to inform you that any tax advice that may be contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax‐related penalties under the Internal Revenue Code or applicable state or local tax law provisions or (ii) promoting, marketing or recommending to another party any tax‐related matters addressed herein.




Andrea Espinola Wilson.
Andrea Wilson Managing Partner; Industry Specialty Services National Co-Leader, Nonprofit & Education Practice 703-752-2784
Adam Cole
Adam Cole Managing Partner 212-885-8327
Laurie De Armond.
Laurie De Armond Assurance Office Managing Partner; Institute for Nonprofit Excellence Executive Director 703-336-1453
Marc Berger
Marc Berger National Director, Nonprofit Tax Services 703-336-1420
Lee Klumpp
Lee Klumpp National Professional Practice Partner – Nonprofit and Government Industries 703-336-1497
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