When it comes to financial management, I’ve run into two types of non-profit organizations. There are those organizations who struggle with financial management and don’t have a strong and independent Finance committee in place. Then there are agencies whose Finance committee is the strongest voice in the boardroom. For the latter type of organization, the question about whether or not to form an audit committee always seems to linger in the air with a diversity of opinions spinning around it.
In my experience, strong finance committees have had a difficult time accepting the case for support for forming another standing committee focused on finance. After all, it is hard to argue with the “Why fix something that isn’t broken?” argument. Moreover, the “Our agency should stay ahead of Sarbanes-Oxley legislation” also seems to fall flat.
I fought these battles a decade ago when I was on the front line leading a local non-profit organization. I was successful in my quest to form an audit committee, and it allowed us to relieve the Finance Committee of the following roles and responsibilities:
- Selecting the audit and periodically putting the audit work out for bid.
- Reviewing the work of the auditor and making recommendations to the board based on this work.
- Providing board oversight of the auditor so that management hasn’t his/her only point of contact.
- Review and assessment of the agencies internal controls.
In hindsight, I loved this move for two big reasons:
- It got some stuff off of the Finance Committee’s plate and allowed them to focus on important stuff.
- It gave me another committee opportunity to engage board volunteers and recruit influential finance-minded non-board volunteers.
I must admit that in the beginning many people (including myself) still had a difficult time with the blurry line between these two committees. This issue recently reared its head at an agency where I am doing some work, and I really like the clarity that came out of the conversation. So, I thought I’d share it with you this morning.
- Finance Committee – develops and monitors financial practice
- Audit Committee – monitors the process in which financial practices are carried out
Are you still not feeling it? OK, the following is a list of resources that I really like and hopefully provide you with the answers for which you’re looking:
- Minnesota Council of Nonprofits: “Nonprofit Finance vs Audit Committees“
- BDO’s Nonprofit Standard blog: “Effective Audit Committees“
- The Center for Association Leadership: “Nonprofit Audit Committees — A Toolkit“
- American Institute of CPAs: “AICPA Not-for-Profit Audit Committee Toolkit Downloads“
- Virginia Society of Certified Public Accountants: “Audit Guide for Audit Committees of Small Nonprofit Organizations“
I hope you find these links helpful.
Has your organization formed an audit committee? What was your experience? Did you develop two different committee charters with two different committee work plans? If so, how did you divide things up? How have things worked since you made the change? Does your audit committee feel like a superficial after-thought that you only did because people were telling you it was a best practice?
Please scroll down and share your thoughts and experiences in the comment box below. This is an important board governance question that always seems to fly under the radar. Let’s talk about it.
Here’s to your health!
Founder & President, The Healthy Non-Profit LLC