It is always preferred that a member of the board of directors serve as the chair of the audit committee. This member should be in good standing and independent from management. In smaller not for profits this usually falls to the Treasurer. Since the Treasurer may utilize a “Finance or Treasurers Committee” structure, that committee many times takes on the dual role of audit committee. Independence is quite important and should be evaluated. This is generally based on the policies established by the organization. Minimal independence standards would prohibit employees or those with direct financial interests in entities serving the organization from serving on the audit committee. Quite clearly, no member of the organization’s independent auditors may serve on the audit committee or on the board of directors. However, a good working relationship of the committee and auditor is quite valuable for many reasons.
The committee’s size and composition will vary by the size of the organization, its charter and complexity and extent of operations. Therefore, the committee can be as few as two or as large as needed to accomplish the role and aspects deemed appropriate by the Board. It is vital that: (1) consideration be given to what has been previously accomplished by the Committee, (2) goals are set out by the Board and (3) determine he number of individuals involved in order to establish a committee strategy. The march toward best practices starts with step one and requires many. Overzealous expectations generally lead to failed objectives which tend to degrade the morale of the hardest working members. This is especially true in volunteer Boards.
Board composition tends to change over time. Therefore, establishing basic guidelines and committee structure should be a priority for Treasurers so that a functioning structure is available to the next Chairman. If nothing else, leave the Committee in better shape than you found it and provide adequate Standards of Operating Procedure for the next person. Such Standards should be provided to the Board’s Historian as the transition from one person to another maybe less than complete and thus your hard work can be compromised. By establishing a functioning Audit Committee aspect to the role of Treasurer, you allow the organization to comply with generally accepted committee principles. This in turn paves the way towards a comprehensive and more effective annual audit. The benefits of a free flow of appropriate information between management, the Board, and auditor will be realized for many years after your service.
Do you need professional help with your nonprofit? Czarnowski & Beer is currently offering a complimentary, no-obligation evaluation of your nonprofit organization. Visit our nonprofit offer page or contact us at info@czarbeer.com or call (212) 397-2970 and we will be happy to help you and answer your questions.