Louis E. Michelson, A Professional Corporation

Providing Legal and Tax Advisory Services to Nonprofit Organizations

Audit Committees of Nonprofit Organizations

October 16th, 2009 · No Comments · Charity, Governance

Charities with gross revenue of $2 million or more must now establish an audit committee. This only applies to charitable corporations that must register and file reports with the Attorney General, whenever such organizations accrue the $2 million of revenue in any fiscal year, with certain grants from government entities excluded from the revenue threshold.

The audit committee must be appointed by the board of directors. It may include persons who are not board members, but may not include staff members, the president, the CEO, and the CFO. If the charity has a finance committee, the audit committee may include finance committee members but they may not comprise of more than 50% of the audit committee. Any person who has a material interest in any entity doing business with the charity may not serve on the audit committee. Additionally, audit committee members may not be paid more than the members of the board of directors for their services on the board.

The Nonprofit Integrity Act of 2004 specifies the committee’s responsibilities. Under the board’s supervision, the audit committee makes recommendations on the hiring and firing of the independent auditor and can negotiate the auditor’s compensation. The committee must:

Confer with the auditor to determine that the financial affairs of the charity are in order

Review and decide whether to accept the audit

Approve non-audit services by the CPA firm and ensure that non-audit services performed by the CPA firm conform to standards for auditor independence.

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