Nonprofit Finance vs Audit Committees

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by the Nonprofit Risk Management Center

Understanding the distinct roles of finance and audit committees is part of the learning process for many nonprofit organizations. Many organizations are understandably looking for ways to economize and believe having one committee handling both finance and audit oversight will save staff time. However, the benefits of having separate finance and audit committees are too significant to ignore. Taking a closer look at the duties of each committee quickly reveals the reasons why the separation is important, even for small nonprofits.

In general, the finance committee monitors financial practices of the nonprofit while the audit committee monitors the process in which the financial practices are carried out. For example, the finance committee oversees the preparation of the nonprofit’s budget and periodic financial statements while the audit committee reviews the process and ensures that reports are received, monitored and disseminated appropriately. The finance committee also monitors financial transactions on an ongoing basis. The audit committee examines the nonprofit’s financial management policies and practices to ensure that things are done according to policy and with adequate controls. The finance committee provides guidance about what can be done to increase the effectiveness and efficiency of financial management activities. The audit committee provides oversight of the nonprofit’s policies and practices and seeks and interprets the findings of independent auditors.

Many nonprofit leaders continue to believe that a single committee can effectively oversee day-to-day financial matters while ensuring adherence to financial policies and overseeing the annual independent audit. Yet the same leaders often complain that the workload of the finance committee makes it unappealing to many members of the board.

There are two additional benefits to consider when you separate a joint finance and audit committee into two separate board committees. First, by separating the two, it will reduce the burden on the finance committee and potentially make it a more appealing volunteer service opportunity. Second, establishing two volunteer committees with fiscal oversight responsibilities doubles the number of board members actively engaged in oversight of the organization’s finances.

While separating the financial and audit committees may not be a feasible option for all nonprofit organizations, there are significant benefits to doing so that can outweigh time savings.