By Edmund Fosu-Laryea, CPA and Joe McGrory, CPA
The Role of an Audit Committee
One of the primary roles of a Board of Commissioners is to provide oversight of the financial management for an organization. They may accomplish this through the establishment of an audit committee. Many board members believe that the external auditor is responsible for financial oversight and the implementation of internal controls over financial reporting. However, these responsibilities lie within the governing board of an organization. This is especially crucial amongst housing authorities, where the segregation of duties of individuals may be limited due to the small size of the entity. The formation of an audit committee may allow board members with the necessary skills and knowledge to focus on the financial oversight and to implement effective controls over financial reporting and evaluating mission effectiveness?
Composition of a Committee
The number of individuals included in an audit committee may vary depending on the organization, but three to five members is considered a standard range. Audit committees may benefit from having individuals of diverse and complimentary backgrounds. Committee members must possess the business acumen and the awareness of public interest to provide effective oversight. At least one member of the committee should have familiarity with accounting principles and financial reporting practices applicable to housing authorities. The most important attribute of the members is to be committed to the task and to have adequate time to devote their efforts to the Authority.
Internal Control Structure
The audit committee may assist management with designing and implementing effective internal control procedures to prevent fraud and mitigate errors in financial reporting. It must however distinguish its oversight responsibility from the day-to-day management of the Authority. In authorities with limited numbers of individuals involved in the financial reporting process, the committee may be directly involved in the internal control structure. Examples of these control procedures may include the reviewing of monthly bank reconciliations, review of monthly financial results, and budget vs. actual variance analysis, and the requirement of a committee member’s signature on all checks over a certain threshold.
The audit committee should be aware of areas of high risk and uncertainty. Communication with management and external auditors will allow the audit committee to determine if management’s procedures are adequate and whether changes in accounting principles and financial reporting practices will have an effect on the Authority.
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