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Financial Management: An Audit Committee Charter for Churches

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COMMITTEE ROLE

The committee’s role is to act on behalf of the governing board and oversee all material aspects of the church’s financial reporting, control, and audit functions. The audit committee’s role includes a particular focus on the qualitative aspects of financial reporting, church processes for the management of risk, and compliance with significant, applicable tax, legal, ethical, and regulatory requirements.

The role also includes coordination with other board committees and maintenance of strong, positive working relationships with management, external and internal auditors, counsel, and other committee advisors.

COMMITTEE MEMBERSHIP

The committee should consist of at least three members. To ensure that the committee is independent, a majority of the committee members must be other than staff (including missionaries, volunteers, or other staff who have raised their own support). However, persons who volunteer a substantial number of work hours can meet the “non-employee/staff” qualification, as long as their services are not in decision-making roles. The committee chair should not be an employee of the church. The auditor should not serve as a member of the committee but should only serve in an advisory capacity. Adequate financial expertise should be represented on the committee.

Committee appointments shall be approved annually by the full board upon recommendation of the nominating committee.

COMMITTEE OPERATING PRINCIPLES

The committee shall fulfill its responsibilities within the context of the following overriding principles:

1. Communications. The chair and other committee members shall, to the extent appropriate, maintain an open avenue of contact throughout the year with senior management, other committee chairs, and other key committee advisors (external and internal auditors, etc.), as applicable, to strengthen the committee’s knowledge of relevant current and prospective church issues.

2. Meeting agenda. Committee meeting agendas shall be the responsibility of the committee chair, with input from committee members. The chair is also expected to ask management and key committee advisors, and perhaps others, to participate in this process.

3. Meeting attendees. The committee shall request members of management, counsel, internal and external auditors, as applicable, to participate in committee meetings, as necessary, to carry out the committee’s responsibilities. Periodically (at least annually), the committee shall meet in a private session with only the committee members. It shall be understood that either internal or external auditors, or counsel, may at any time request a meeting with the audit committee or committee chair, with or without management’s attendance. In any case, the committee shall meet at least annually in a private session separately with internal and external auditors.

4. Meeting frequency. The committee shall meet at least once a year. Additional meetings shall be scheduled as considered necessary by the board, the committee, or the chair.

5. Reporting to the board of directors. The committee, through the committee chair, shall report periodically to the full board (as deemed necessary, but at least once a year). In addition, summarized minutes from committee meetings shall be available to each board member prior to the meeting of the board of directors.

6. Maintain competency. The committee shall possess financial expertise sufficient to perform its functions. This expertise may be found in a single member or among a combination of committee members. The committee shall annually assess its competency and supplement with additional training as needed.

Committee Responsibilities

Financial Reporting

Review and assess the financial statements before they are released to the public or filed with funders or regulators.

Review and assess the key financial statement issues and risks, their impact or potential effect on reporting financial information, the processes used by management to address such matters, related auditors’ views, and the basis for audit conclusions.

Approve changes in important accounting principles and the application thereof in both interim and annual financial reports.

Advise financial management and the external auditors that they are expected to provide a timely analysis of significant, current financial reporting issues and practices.

Review the management letter and review management’s response to the management letter.

Risks and Controls

Review and assess the church’s operating and financial risk management process, including the adequacy of the overall control environment and controls in selected areas representing significant risk.

Review and assess the church’s system of internal controls for detecting accounting and financial reporting errors, fraud and defalcations, legal and tax code violations, and noncompliance with the church’s code of conduct. In that regard, review the related findings and recommendations of the external and internal auditors, together with management’s responses.

Review the results of the annual audits of directors’ and officers’ expense accounts and management perquisites prepared by the external or internal auditors.

External and Internal Auditors

Recommend the selection of the external auditors for approval by the board of directors.

Instruct the external auditors that they are responsible to the board of directors and the audit committee as representatives of the church. In that regard, confirm that the external auditors will report all relevant issues to the committee in response to agreed-upon expectations.

Review the performance of the external and internal auditors.

Obtain a formal written statement from the external auditors as to their independence. Additionally, discuss with the auditors any relationships or non-audit services that may affect their objectivity or independence.

Consider, in consultation with the external and internal auditors, their audit scopes and plans to ensure completeness of coverage, reduction of redundant efforts, and the effective use of audit resource.

Review and approve requests for any consulting services to be performed by the external auditors and be advised of any other study undertaken at the request of management that is beyond the scope of the audit engagement letter.

Review with management and the external auditors the results of the annual audits and related comments in consultation with other committees as deemed appropriate, including any difficulties or disputes with management, any significant changes in the audit plans, the rationale behind adoptions and changes in accounting principles, and accounting estimates requiring significant judgments.

Approve changes in the operating plans of the internal audit function.

Instruct the internal auditors that they are responsible to the board of directors through the committee.

Other

Review and update the committee’s charter.

Oversee administration of the church’s conflict-of-interest policy, including the review and approval of significant conflicts of interest and related-party transactions.

Used with permission from the ECFA Knowledge Center. ECFA.org

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