If a nonprofit’s board members weren’t informed of the totality of their roles when they agreed to serve, it’s very possible that they don’t understand one fundamental truth.
Every nonprofit board member has fiduciary responsibilities and obligations. These duties begin as soon as a board member has been seated.
The board is responsible for oversight of the nonprofit’s accounting functions and evaluating the performance of any independent auditors. Some nonprofits choose to create an Audit committee to oversee the audit, while others may include that responsibility in the board’s finance committee. Either way, the ultimate responsibility lies with the board.
What is an audit committee and what does it do?
An Audit committee is simply an ad hoc or permanent committee that has been given responsibility and authority by the Board of directors to make final recommendations to the board for final approval. The Committee must include board members. If it’s appropriate, it can also include vetted members from outside the organization. Essentially, the Audit committee is accountable for the audit, which includes:
- Overseeing the entire process — hiring, evaluating and, if necessary, terminating the independent auditor.
- Having direct and often confidential discussions with the auditor to talk about whether or not there is any suspicion of fraud by nonprofit staff or agents, suppliers, or vendors.
- Presenting the audit reports and, if applicable, sharing findings with the full Board of directors.
- Ensuring that the board understand recommendations made by the auditors.
- Offering understanding and support for recommended changes in practice, reporting or processes to maintain or bring the nonprofit into line with acceptable accounting practices.
- Receiving complaints about financial management and being responsible for investigating issues to ensure there is no retaliation against anyone for coming forward (this is a designated board duty in some nonprofits).
An Audit committee is not mandatory. Nonprofits may also use the executive committee to provide oversight for the independent audit process. Some boards assign oversight to the full board but having a smaller group focus on the audit process often proves to be far more practical.
The audit committee has responsibilities beyond the annual audit process. The committee needs to be aware of the overall financial health of the nonprofit. Members should understand all recommendations contained in audit reports and should work with management and the full Board of directors throughout the year to improve or alter any financial practices or policies that are questioned and implement recommended changes outlined in the auditor’s report.