Finance and Audit Committees
This article was originally published in the June issue of Association TRENDS and is reprinted with permission.
Most associations have at least one board committee that oversees the association's money. Some associations have divided the oversight duties and assigned them to multiple committees. A single association could have a budget committee, an investment committee, a finance committee and an audit committee. Each committee would then be given a discrete charge and committee members would focus on the work required to meet that charge.
With multiple committees comes the inevitable question of who reports to whom? Are the budget committee and the investment committee subcommittees of the finance committee? If they are subcommittees, then those committees would report to the finance committee which would in turn report up to the executive committee and full board. Or each could be standalone committees that report up independently of each other. Sometimes an association's executive committee serves as the finance committee or the audit committee. How many committees does an association need to oversee its books?
Generally, a finance committee and an audit committee are all that an association needs. Understanding the unique responsibilities of these committees will aid in determining the correct committee structure for your association.
It might be easiest to explain the role of the audit committee first since the finance committee is generally responsible for oversight of all other financial matters. The audit committee is generally charged with selecting the association's auditor, receiving the initial audit report, discussing any challenges encountered during the audit with the audit partner, and working with staff to address any concerns raised by the audit team in the management letter. A copy of the audited financial statement and the management letter should be provided to each member of the board and the auditor should meet in executive session with the entire board. This gives all of the board members an opportunity to ask any questions they might have of the auditors.
The finance committee oversees the rest of the association's financial matters, either directly or through subcommittees. Finance committees typically work with the chief financial officer to establish and monitor the association's budget, oversee investments, and ensure that tax returns are timely filed and GAAP financial practices are followed.
While an association could have one committee that handles both the finance and audit roles, we generally recommend that there be two committees as the audit committee reviews the work performed under the oversight of the finance committee. This separation of duties is becoming a best practice in nonprofit governance.