Audit committee in not-for-profit organization

An effective audit committee must work well with the board and the management team. It is essential that prospective audit committee members understand their role in each of these relationships.

The audit committee and the board 

The audit committee represents the board in fulfilling some of its responsibilities, specifically financial oversight and risk management for the organization. The audit committee should report at least twice per year at board meetings. While the board has delegated detailed responsibility to the audit committee, ultimately board members are accountable for the work of the committee. Consequently, it needs to be thoroughly informed, typically through a report from the committee to the board. Topics to be addressed include:

• Plans for and results of internal and external audits, and any audit-related issues that merit the board’s attention;
• Issues of business risk and financial accountability;
• Internal control or procedural issues;
• New systems and controls implemented and evaluated;
• Regulatory issues;
• Pension audits; and
• T3010 Registered Charity Information Return or T2 Corporation Income Tax Return and T1044 Non-Profit-Organization (NPO) Information Return and/or other applicable tax or information returns.

The audit committee and management 

Management is responsible for creating and maintaining internal controls, and audit committee is responsible for understanding if those controls are designed and implemented adequately.

While the audit committee works collaboratively with external or internal auditors and management, it is independent of each of these groups and must come to its own conclusions.

The audit committee should discuss identified internal control issues with management and review management’s plans for addressing them. In some cases, management may recommend against implementing auditor’s suggestions on a cost-benefit basis – or even recommend an alternative solution. The audit committee should consider these suggestions, discuss them with the auditors, if necessary, and bring any unresolved mattered to the board’s attention. 

The emergence of enterprise risk management as an integral part of organizational risk-related activities creates a new role for the audit committee in understanding and assessing internal processes and management-led risk initiatives for identifying, managing and mitigating risk.

The audit committee can provide management with valuable, objective experience and expertise not available in-house and can serve as a sounding board for any issues related to reputation, strategic risk, operations, finance, internal controls and the public trust. By giving management an opportunity to discuss sensitive matters up front, the audit committee can help fend off potential problems before they arise.