Why Your Not For Profit Needs an Audit Committee
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In recent years, several companies have found themselves on the front pages of newspapers for illegal business activities. As a result of notable scandals, not for profits must remain educated concerning the design and responsibilities of an audit committee to ensure your organization remains financially strong and responsible.
According to the Sarbanes-Oxley Act of 2002, a company’s audit committee must be comprised of members of the Board of Directors who are also considered “independent.” This means that committee members must not receive compensation for their services on the audit committee or within the organization in another function, except if they are paid as a board of directors member. Generally, though, members of the board are volunteers and don’t receive compensation.
The committee must also contain one designated finance expert who interfaces with the auditor. This person must have the knowledge and ability to analyze financial documents. The other members should also be able to make sound financial decisions.
Not for profits should conduct audits through an outside professional, with that auditor’s purpose being to discover any fraudulent activities within the organization. The auditing committee will then work with the auditor and the board of directors to identify financial red flags and ensure all aspects of the organization are operating legally.
In addition, the auditing committee should supervise the organization’s management and oversee the finance reporting procedures, including the following duties:
- Select the outside auditor without management input to ensure there is no conflict of interest
- Work with the auditor to regulate the organization’s finances on a regular basis and especially at the end of the fiscal year
- Establish a level of openness within the organization, and encourages employees and board members to speak up about any fraudulent activity
- Monitor the organization’s operations and risk management controls
- Ensure that all financial reporting within the organization complies with federal and state regulations, and follows the doctrines established by the board of directors
More questions? The ‘A’ Team has answers.
- Finding the Board Sweet Spot
- 2016 Outlook Video: Not For Profit
- Protecting Your Organization's Directors and Officers
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