It is vital for adequate functioning as a committee, that an annual evaluation be made and that the results of that evaluation are documented in committee meeting minutes, specifically, how financial expertise is available to the audit committee. This needs to be affirmed annually and when there is a change in status. Also, the review of the charter is to be accomplished each year.
Someone needs to be diligent and review with management the policies and procedures especially with respect to officers, key employees (executive director, CFO, chief operating officer), expense accounts, and perks, including excess benefit transactions (consider the results of any review of these areas by the internal auditor or the independent auditors). The board is charged with the responsibility to ensure written policies and procedures exist. However, monitoring those is the role of your committee. Take your opportunity to speak to the CAE (or equivalent) regarding the need for testing by either the internal auditors, independent auditors (in any), or other parties. This role should occur annually.
Naturally, you need to report to the board. Obviously, review any significant findings as they arise with your committee in order to develop common sense resolutions to these risks.
Speaking on significant risks or exposures facing the organization, your committee’s role is to assess the steps management has taken or proposes to take to minimize such risks to the organization AND periodically review compliance with such steps. It is vital to document and work toward minimizing the material risks that the organization faces. Those can include adaptions of objectives, enhancing internal controls and/or offsetting risk to others, like an insurance company.
These all can be adequately addressed starting with inquiry of management, the CAE, and the independent auditors followed by interaction with management and the CAE on a periodic basis. The important deliverable is a risk report which should be provided to the board and the independent auditors, including mitigation strategies, quantifying the risks and identification of insurance to cover such risks, e.g., loss of business. Consider updating the risk report as events occur and of course, review these at least once each year, more frequently as necessary.
Review risk exposure with each public accounting firm that performs an audit on critical accounting policies and practices used by the organization. It is vital to discuss each matter, and related matters that may come to the attention of your committee, as well as involving the independent auditors through this process.
You are then in a position to review with the independent auditors, CFO, controller, and CAE the audit scope (and plan of the internal auditors, if applicable) with the independent auditors.
Together, you can create an action plan and establish a follow-up plan as is necessary. This should also occur at least annually, and/or most specifically be ready before the start of the year-end audit. All alternative treatments of financial information within generally accepted accounting principles that have been discussed with management of the organization, the ramifications of each alternative, and the treatment preferred by the organization can then be considered in conjunction with the external.
We don’t always see that material written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences are appropriately discussed with the audit committee us. It is important that your committee discuss each item with the independent auditors and management (including the CAE) and conclude on the appropriateness of the proposed resolutions. Submitting reports to the board summarizing the documentation of such discussions, resolution of issues, and the action plan for any items requiring follow-up and monitoring.
Lastly, periodically review the organization’s code of conduct/ethics to ensure that it is adequate and up-to-date as the tone from the top (the Board) must be supported by you and your committee. Only with your support can it be assured management will take notice and better consider living by the standards. Review results of this evaluation with the CAE and general counsel. Work with them, management and the board for adaptations that may be necessary to the organization’s code of conduct/ethics and areas prone to violation.
With all of these aspects, which we see trend to fall by the wayside by Treasurer committees, consider steps that may need to be taken to ensure that compliance is at the highest possible level. Don’t be shy to recommend, and where necessary or vital, push for changes to accomplish best practices. Also, for each, assure that you report to the board that the review of an aspect has been done and work to accomplish each annually. The review of any significant findings detected needs to be addressed as they arise. Your review with the CAE and the organization’s general counsel the results of their review of the monitoring of compliance tends to assure that aspects such as independence, conflicts of interest, related parties, inurement, and other issues are appropriately deal with. Our experience is that it all starts with you. Thus, we recommend that a recurring schedule of each task that the committee wishes to accomplish over the year be assigned a specific month or meetings.
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