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THE AUDIT COMMITTEE
Discussion
In accordance with VA handbooks 1200.17 and
1400.2, each nonprofit with more than $300,000 in revenues during the previous
fiscal year must undergo an
independent audit. In addition, any organization that expends during the
previous fiscal year $500,000 or more in federal funds must undergo a more thorough A-133 audit. One of the
best ways to ensure accountability and financial integrity is to have an annual
independent audit. The board should ensure that the audit is performed in a
manner that allows sufficient time for the board to review the report prior to
the Form 990 and annual report to VA deadlines.
The board may decide to form an audit committee to separate the audit
function from management and to make it clear that the auditor's
"client" is the board of directors, not the executive director or
other management staff. The Sarbanes-Oxley Act provides that at least one
member of the audit committee should be a member of the board who possesses
financial expertise and who is otherwise independent of the organization.
In the case of the NPCs, this is likely to mean that one of the two community
board members should be an accountant with nonprofit experience. Round out
the audit committee with the treasurer and one other board member.
The audit committee should solicit and review competitive bids from at least three auditing firms with knowledge of non-profit organizations, generally accepted government auditing standards (GAGAS), and, if expending federal funds, A-133 requirements.
The audit committee is responsible for meeting with and evaluating the audit candidates.
After narrowing down the candidates, the audit committee should recommend one
auditor for approval by the full board.
After the auditor has been approved, the audit
committee should meet with the auditor to review the scope and plan for the independent audit.
Following the audit, the committee should meet with the auditor to discuss the results of the audit
and any internal control issues that may have arisen. Finally, the auditor
should report its findings to the full board. During this meeting, the
auditor should also present its recommendations for corrective actions, if
needed. A good auditor will take the time to educate the board about its
fiduciary responsibilities and how to fulfill them through the audit process.
Note: NPC’s may chose to stay with the same auditor year after year, but about once every three years, it should go through an evaluation process to ensure that the NPC has the best auditor at a reasonable cost.
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