The Role of the Internal Audit Committee

Chamber Executive: Internal Audit Committee article for Jan/Feb issue

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Why bother with an Internal Audit Committee when you already pay a CPA firm?

Your board of directors ultimately has fiduciary accountability for your chamber. With the current economy having an impact on many chamber budgets, the last thing you or your board need are surprises at the end of the fiscal year. Even if an independent CPA firm audits your chamber, forming an Internal Audit Committee provides another level of assurance to the board, and the management team, that the chamber’s financial affairs are being managed effectively. Typically, the Internal Audit Committee would be chaired by your treasurer. That individual would be expected to work closely with the chamber’s independent CPA.

Where do I begin?

After you have formed the committee, the next step is to plan a meeting between the committee and the CPA to discuss the management letter. The committee should then prepare a report for the board addressing all of the issues noted in the management letter. This report must include the status of the resolution of each of the issues.

What is included in a good plan?

The committee begins to work with the CPA to formulate an Internal Audit Plan that will specify, in detail, the committee responsibilities. At a minimum, the committee should consider the following:

• Have cut-off bank statements mailed directly to the treasurer in advance of the audit.
• Review the prior month’s bank reconciliation in detail.
• Ensure that the chamber’s internal control policies are effective and, more importantly, being followed.
• Make an appointment with representatives of your bank to review signature cards to ensure that the signers are authorized and that there are no unauthorized accounts.
• Meet with your insurance agent to ascertain that coverage is adequate for all policies, with particular attention to the fidelity bond.
• “Test” the payroll by comparing payroll records to personnel files and contact each employee directly to assure there are no “ghosts on the payroll”.
• Interview all employees who are responsible for receiving and disbursing checks to ensure that policies and controls are adequate and being followed.
• “Test” disbursements to ensure that invoices have been approved for payment properly.
• Check the accounts payable files and physically contact atypical vendors to ensure they exist.

What is the best time to have the audit?

The internal audit should be scheduled between the last day of the CPA’s fieldwork and the date the CPA is expected to begin the next audit. This is commonly known as “the window of opportunity” because it is the period when most fraud occurs. It is also important to conduct an unannounced audit to ensure that anything untoward in the finances will show up.

What can I expect after the audit?

At the conclusion of the audit, the committee will prepare an in depth report of their findings. The formal internal audit report should be reviewed with the chamber’s Chief Executive Officer and Chief Financial Officer at the conclusion of the audit. In addition, the audit committee report should be shared with the board and the independent CPA firm.

An Internal Audit provides the additional checks and balances needed in the management of the financial operation. It also provides added protection for everyone involved in financial matters and supports the board’s fiduciary financial responsibilities. In these times of concern about any organizations’ financial management, an internal audit committee is relatively easy to put in place, but will reap tremendous rewards in the long run. It is one good way to have financial peace of mind. (CE)

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