In nonprofit organizations that undergo an annual independent audit, boards often find that delegating oversight of the audit process to a smaller committee makes a lot of sense. While the entire board of directors has ultimate responsibility for the audit, a small committee (or even a task force that convenes just before the audit and disbands after) is typically more nimble, efficient and effective.
One advantage of a separate audit committee is its independence. The committee should comprise directors who are independent of the management of the organization. In some cases, nonprofit boards invite volunteers or others who are not board members. The committee’s independence allows it to be objective when assessing the organization’s financial procedures and staff members, as well as the performance of the auditors.
Note that, while your CFO and executive director cannot serve on the audit committee, they will be expected to attend audit committee meetings when requested.
Roles & Responsibilities
The audit committee’s main role is to safeguard the organization’s financial integrity. Therefore, it is responsible for:
The audit committee should meet as often as necessary to fulfill these duties. At a minimum, it should convene twice a year — once before the annual audit to discuss pre-audit plans, and once after the audit to discuss the audited financial statements and comments from the external auditors. Ideally, the committee will meet at least three times a year.
Read our nonprofit audit committee checklist for more best practices, or give Armanino’s nonprofit accounting advisors a call to discuss how to start an audit committee or strengthen an existing one.
California’s Audit Committee Requirements Under the Nonprofit Integrity Act
In the wake of financial scandals involving large nonprofits as well as corporations, California enacted the Nonprofit Integrity Act of 2004. Among its many provisions is an audit committee requirement for charities with gross revenues of $2 million or more that file reports with the California attorney general. Schools, hospitals and religious organizations are generally excluded.
In an effort to ensure the audit committee’s independence, the act requires the following:
Different states have different requirements for independent audits and audit committees in nonprofit organizations. You can find a list of each state’s nonprofit audit requirements here.
December 17, 2018