Audit Committees

The financial condition of a community is ultimately the responsibility of the mayor and city council. The mayor, council, city staff and independent auditors must work together to:Ensure the quality of the financial reporting is adequate to make sound decisions.Ensure compliance with state and federal regulations.Provide the best internal controls possible.
An audit committee is one way for a council to provide the much needed independent review and oversight of the city’s financial reporting processes, internal controls and independent auditors. An audit committee also provides a forum separate from management in which auditors and other interested parties can candidly discuss concerns. Here are some recommendations to establish an audit committee. (Note: theGovernment Financial Officers Association,Association of Government Accountants and other organizations have suggested audit committee structures which are more comprehensive than what is noted below.)Each city should establish an audit committee or its equivalent; some cities use a council finance committee to handle these duties.The audit committee should be formally established by resolution or as part of the city’s financial management policy. The policy should describe the scope of the committee’s responsibilities as well as its structure, processes or any membership requirements. The audit committee should review its responsibilities periodically, but no less than once every five years, to assess its role in the city’s financial reporting. Ideally, members of the audit committee should have or obtain an understanding of governmental budgeting, financial reporting and auditing. Members should possess a basic understanding of generally accepted accounting principles and financial statements and internal accounting controls. At least one member of the audit committee should be a member of the city council. To ensure the committee’s independence and effectiveness, no member should have management responsibilities that fall within the scope of the audit. Note: the city clerk or finance director should work with the committee, but not be a member. As a general rule, the committee should have three or more members, but not be so large that they impede its efficient operation. It is the responsibility of the audit committee to provide independent review and oversight of a government’s financial reporting processes, internal controls and independent auditors, including a duty to exercise an appropriate degree of professional skepticism. The committee should be involved in the creation and review of the request for proposal (RFP) for audit services to make a recommendation to the council. During the audit engagement the committee should be available for consultation with the independent auditors. The audit committee should establish procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls, or auditing matters. Such procedures should specifically provide for the confidential, anonymous submission by employees of the government of concerns regarding questionable accounting or auditing matters. The audit committee should report to the city council annually on its activities. In its report, the audit committee should specifically state that it has discussed the financial statements with management and with the independent auditors.