Sarbanes-Oxley laws showed public companies how serious the government takes the clarity of financial statements. The new 990 IRS form is also an indication of the government’s intention of keeping an eye on nonprofits. A nonprofit should stick to its mission, produce financial statements that give a clear picture of its financial position, and maintain internal controls so that both of these objectives are met.
In today’s regulatory environment, a nonprofit’s audit committee function is vital. It should be comprised of dedicated board members and can also include independent external parties. There should be no member of management on the audit committee. All of the audit committee members should have a basic understanding of financial statements. It is imperative that at least one of the members be an expert at reading and preparing financial statements and be knowledgeable about GAAP (generally accepted accounting principles).
This financial literacy allows the committee to evaluate the preparation of the NPO’s financials, the effectiveness of internal auditors and internal controls, as well as being able to converse openly with the external auditors.The nonprofit benefits when the committee functions correctly.
Al Weber, CPA and partner of McGladrey and Pullen has written an Audit Committee Guide for Not-for-Profit Organizations that you might find helpful.www.nam.org/~/media/Files/s_nam/docs/233000/232980.pdf.ashx
Tags: Audit Committee, Best Practices, Board of Directors, Sarvanes-Oxley