The Role of the Audit Committee – A Refresher

The Audit Committee, under the governing Board’s supervision, is responsible for making recommendations to the Board on the hiring and firing of the independent CPA. The Audit Committee can negotiate the independent CPA’s compensation, on behalf of the governing Board.

The Audit Committee must:

1. Confer with the auditor to satisfy committee members that the financial affairs of the nonprofit organization are in order
2. Review the audit and decide whether to accept it
3. Approve non-audit services by the independent CPA’s accounting firm, and ensure such services conform to Yellow Book independence standards

Composition of the Audit Committee

1. The California Nonprofit Integrity Act of 2004 notes that while the Board of Directors must appoint the Audit Committee, Audit Committee members may include people who are not members of the Board (other than the nonprofit’s staff members)
2. However, in January 2010 AB 1233 took effect which contained a very significant change to the California Corporations Code, namely clarification that committees of a nonprofit public benefit corporation authorized to exercise the powers of the Board of Directors must be comprised solely of directors
3. This makes sense, because otherwise non-directors would be granted the powers of directors simply through their committee membership
4. How to address this conflict? Legal advice is to follow the most current California law, which requires all Board committees with authority to act on behalf of the Board, to be comprised solely of directors. However, an option is to make non-Board members non-voting advisors to the Audit Committee. They can’t vote and won’t count towards quorum, but the Audit Committee will have the benefit of their expertise and input. Also, it’s a good way to develop some Board bench strength!