Embarking on an independent audit is a complicated, yet necessary process for many organizations. When it comes to nonprofit audit responsibilities, there are often questions about which task belongs to which party. Nonprofit boards are responsible for the oversight of their organization’s accounting processes, along with the performance of any independent auditor who is hired. In some cases, a board chooses to delegate this responsibility to an audit committee.
The Basic Functions of an Auditing Committee
An audit committee can either be a standing committee or a task force. Even though the board retains final authority, an audit committee is generally smaller, more focused and made up of members with financial expertise. The committee is not responsible for managing day to day accounting functions, and should take on an active role in the audit process.
To maintain objectivity, an audit committee must not contain members who are employed by the nonprofit organization or auditing firm. Following this guideline allows the committee to conduct an unbiased review of the performance of the organization’s staff and the auditors.
Do all Nonprofits Need an Audit Committee?
Audit committees are not mandatory, and many organizations chose to have another committee, such as the executive committee provide audit oversight. Although an entire board can take on this responsibility, some larger boards find the process cumbersome when more than three or four people are involved.
Whether or not a nonprofit forms an audit committee, it is best-practice to review financial processes annually. In fact, even when a nonprofit is not required to conduct an audit by law, they will often find that funding entities will not consider a monetary gift without an independent audit report.
Nonprofit Responsibilities of an Audit Committee
Most audit committees begin working with nonprofit staff prior to the audit, to assist them with the preparation stage. Before the process begins, the roles and responsibilities of the committee should be discussed and confirmed by members. The audit committee might also weigh in on the decision to hire an auditing firm. The committee is typically the group who will present the findings of an audit to the board of directors and recommend any changes in accounting or reporting practices.
Auditor reports are generally presented directly to the audit committee by the auditors, rather than by organization staff. This allows the committee to ask questions of both management and the independent auditors to effectively evaluate the work of both parties.
Conducting an independent audit of a nonprofit organization is a complex, yet necessary process. Ensuring that the staff and board are ready for a financial review will make the task easier and more effective. It is vital you work with an accounting firm that has the experience needed to manage a nonprofit audit effectively.
Let our nonprofit audit services provide peace of mind and help you decide how to best utilize your financial resources. If you have any questions about our nonprofit audit services, one of our CPAs would be happy to speak with you at (925) 933-2626 or, email us at firstname.lastname@example.org.