Nonprofit Audit Committees: Roles & Responsibilities

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:

• Reviewing the organization’s financial statements and other financial data, which are typically prepared by the finance committee. (For more on the delineation of duties between the audit and finance committees, check out this chart.)
• Overseeing the annual audit process, including hiring and communicating with the organization’s external auditors.
• Assessing internal controls over financial reporting, especially controls that surround high-risk areas such as donations, travel and entertainment, professional fees and executive compensation. This assessment should include verification that internal control systems are appropriately documented.
• Reviewing annual information returns, such as Form 990.
• Overseeing compliance with all applicable laws and regulations and the organization’s code of conduct.

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.