If you are on the board of a church, Christian school or other para church ministry, you have a fiduciary responsibility to ensure the financial affairs are conducted in a prudent manner. And if you manage one of these nonprofits, you have direct responsibility for this as well. Through a well functioning independent audit committee, you can ensure your organization’s financial affairs are being properly conducted and your organization’s reputation protected.
So what does a well managed audit committee oversee? Audit committees by definition oversee the financial audits (or CPA engagements) by the organization. However, the committee has many more functions that assist with overseeing your financial affairs. Here is a list of common functions:
- Engagement and oversight of the preparation of your final annual financial statements. Whether you use an external CPA or your financials are prepared internally, your audit committee should be responsible to ensure the financial statements are accurate.
- Are adequate internal controls present? Your audit committee, whether they conduct the review themselves or have an external auditor perform the review, will ensure adequate controls, dual custody and reviews are in place for all the financial functions.
- Are appropriate policies in place to ensure good stewardship? They will review the existing and make recommendations for new polices.
- Is the organization adhering to applicable laws and regulations? Making sure you follow federal and IRS rules and guidelines as well as state laws will help ensure compliance. Even making sure your organization complies with copyright and license agreements are an appropriate role.
- Quantify the financial risks your organization faces and report the findings to management and the board. Ensuring adequate insurance polices are in place is often a key activity.
When selecting individuals to serve on your audit committee, make sure there is adequate independence with no conflicts of interest to leadership, employees and any external auditor. Once you satisfy that requirement, you will want to select individuals who have knowledge of your ministry as well as possess financial literacy and knowledge of internal controls, business risk and compliance related to ministries. Having a group of 3-5 individuals is typically a good size group to get the work done efficiently.
Having a well functioning audit committee will perform a critical service for your ministry as well as help it improve and protect your reputation. What have been your critical success factors when engaging an audit committee?