ISSUE

One of the important aspects of adhering to internal control best practices might be the operation an “audit committee.”

 

SITUATION

Marathon Bible College (MBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and section 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

Their Controller calls to ask about an “audit committee of their board.”

We tell them that an audit committee is certainly a “best practice” and we admonish them to develop a committee that assumes responsibility for oversight of the audit, review, or compilation of its financial statements and selection of an independent accountant.

Audit Committees are asked about on Form 990 and figure heavily into descriptions of your internal control system and environment.

 

“RULES”

From the 2017 Form 990 instructions:

Part XII, Line 2c – “…answer “Yes” or “No” on line 2c to indicate whether the organization has a committee that is responsible under its governing documents or through delegation by its governing body for (i) overseeing the compilation, review, or audit of the financial statements, and (ii) the selection of an independent accountant that compiled, reviewed, or audited the statements. Answer “Yes” only if both (i) and (ii) apply. If this process has changed from the prior year, describe on Schedule O (Form 990 or 990-EZ).”

From the COSO 2013 Report (Control Environment):

The Control Environment component has five (5) principles relating to it:

• The organization demonstrates a commitment to integrity and ethical values.
• The board of directors demonstrates independence from management and exer­cises oversight of the development and performance of internal control.
• Management establishes, with board oversight, structures, reporting lines, and appropriate authorities and responsibilities in the pursuit of objectives.
• The organization demonstrates a commitment to attract, develop, and retain com­petent individuals in alignment with objectives.
• The organization holds individuals accountable for their internal control responsibili­ties in the pursuit of objectives.

 

BOTTOM LINE

• If your institution does not have a “audit committee” of the board, you should consider it.
• The Audit Committee generally chooses the independent audit firm.
• Form 990 (in Part XII) asks whether your organization has “a committee that is responsible under its governing documents or through delegation by its governing body for overseeing the audit of your financial statements and selecting an independent accountant.
• The COSO 2013 Report contains great insight into Internal Controls and the Control Environment, including the “tone at the top.”

 

Specific questions?   Email Dave Moja

The information  provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.

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