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DC Bar Pro Bono Program - Nonprofit Governance and the Revised Form 990 Webinar
March 3, 2010
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Background on the Audit Committee
Additional Reasons to have an Audit Committee Help ensures the integrity of financial reporting More efficient Serves as a liaison Independence from management
Reliance by the Board on an Audit Committee Yes but with some general caveats
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Background on the Audit Committee
Creating the Audit Committee By the Board Bylaws amendment, resolution or a charter Input from an independent accountant Input from counsel
Why have a Separate Charter Framework of purpose, responsibility and authority Helps define the relationship among the committee, the Board,
management and the auditor
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Contents of the Audit Committee Charter Purpose, responsibility and authority Composition Mechanics Relationship with auditor Relationship with management Reporting obligations Authority and resources Annual review
The Audit Committee Charter
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The Audit Committee Charter
Purpose, Responsibility and Authority “The primary purpose of the Audit Committee is to
assist the Board in fulfilling its responsibility to oversee (a) the integrity of the Corporation’s annual audited financial statements, management letter and other related annual audit documents and (b) the Corporation’s retention of independent auditors, including oversight of their performance, qualifications and independence as well as the terms of their engagement.”
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The Audit Committee Charter
Composition How many – range or exact number Independence Members of the Board Other background requirements such as financial
comprehension
Mechanics Frequency of meetings Quorum requirements Notices of meetings Unanimous written consents
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The Audit Committee Charter
Relationship with Auditor: Oversee the Corporation’s independent auditor who shall
report initially to the Committee and thereafter to the Board Review and approve non-audit services performed for the
Corporation by the Corporation’s independent auditor Discuss any relationships or services disclosed by the
independent auditor that could affect their objectivity and independence
General description of reports to be delivered by the independent auditors
Establish rotation requirements Review and approve hiring by the Corporation of any
employees and former employees of the independent auditor Retention of independent auditor
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The Audit Committee Charter
Relationship with Management: Conduct executive sessions with management Review accounting policies and procedures and internal controls Discuss significant risks or exposures facing the Corporation and
management’s proposed steps to minimize those risks Reports of the independent auditor
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The Audit Committee Charter
Reporting Obligations Maintain written minutes of meetings Prepare reports of the committee’s activities to the Board on a
regular basis Prepare agenda for upcoming year
Authority and Resources Specific authority to retain independent auditors, special
counsel and other consultants as necessary Use of RFPs
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The Audit Committee Charter
Annual Review Provide for an annual review of the charter
Tips and Helpful Resources Although there are similarities, not all audit committee charters
are alike and should be prepared with care AICPA Audit Committee Toolkit located at www.aicpa.org www.boardconnect.org www.nonprofitrisk.org
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The Audit Committee and the Form 990
Form 990 should be completed only after the audit has been completed
Significant disclosure requirements regarding an organization’s governance and compensation practices
Part VI (Governance, Management and Disclosure) Part VII (Compensation of Officers, Directors, Etc.)
Remember who will be reviewing the Form 990 IRS Existing and prospective donors Other funding sources Other nonprofits
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The Audit Committee and the Form 990
Many questions in Part VI require a yes/no response
Part VI, Questions 11 and 11A – Description of the Process (if any) used by the organization to review this Form 990
Review process by the Audit Committee
Review process by the Board
Plan for next year
Short and helpful webinars regarding the Form 990 located at www.stayexempt.org
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Q&A
Carl Kampel, CPA, Director Ellin & Tucker, Chartered
410-727-5735, ext 3025 Email: [email protected]
Oversight
Financial Reporting Process Internal Controls Auditors’ Activities Other Management Activities
Provides a forum separate from management for auditors and other interested parties to candidly discuss concerns
Helps Ensure
A sound systems of internal controls are properly developed and adhered to
Procedures are in place to objectively evaluate management’s practices, and
The independent auditors through their own review, objectively evaluate financial reporting practices.
Members should be appointed by the governing body
At least one member should have financial experience State CPA Societies may be a good source for finding
candidates for this position
Review the charter annually for adequacy
Authorized to hire professional consultants
Oversee the appointment (and discharge) of independent auditors
Conduct executive sessions prior to the audit with
Chief Executive Officer (CEO)
Chief Financial Officer (CFO)/Controller
Independent Auditors
Outside Counsel
Executive Session With the CEO
Review policies and procedures Evaluate the continued independence of external auditors Inquire of the CEO how the organization addresses
significant risks or exposure
Executive Session With the CFO/Controller
Is the organization prepared for the audit Are there new accounting and financial reporting standards
that need to be considered Are there new compliance requirements i. e. awards of
federal funds How has the organization responded to past deficiencies in
compliance
Executive Session With the CFO/Controller continued
Is the financial function adequately staffed Are there significant findings from internal reviews Is there any reason to believe that auditor independence
is impaired
Executive session with independent auditors prior to audit
Scope of the engagement Planned materiality Fraud risks Competence of financial staff Adequacy of systems and procedures
Executive session with independent auditors after the audit
Discussion of all critical accounting policies and practices Significant estimates in the financial statements Significant disclosures in the financial statements Review of annual financial statements, footnotes, and
independent audit reports
Executive session with independent auditors
Any serious difficulties in completing the audit or disputes with management
Matters required to be discussed by Statement on Auditing Standards (SAS) No. 114, Auditor’s Communication With Those Charge With Governance , including financial statement adjustments recorded and not recorded
Matters included in the Statement on Auditing Statement No. 115, Communicating Internal Control Related Matters, including material weaknesses and significant deficiencies
Review with outside counsel
Legal and regulatory matters (financial in nature)
Code of Conduct to ensure adequacy and organizational compliance
Review the procedures for receipt, retention and treatment of complaints and suspected fraud