Do You Need An Audit Committee, Finance Committee, or a Joint Municipal/Education Committee?

Today’s agenda: New thinking on audit, finance & oversight committees: –What are they? –Why do we need them? –Who should have one? –What do/can they do? –What are the benefits? –What are the drawbacks?

What Are They? Audit Committee Audit Committee Finance Committee Finance Committee Joint municipal/education Committee Joint municipal/education Committee

Audit Committee –Volunteers – with sufficient expertise and experience who are authorized to oversee the financial reporting, internal controls, and policies to prevent fraud, waste, and abuse –Supervise the audit process –Appointed by the management of the governing body

Finance Committees Oversee the preparation of the annual budget and financial statements Oversee the preparation of the annual budget and financial statements Oversee the administration, collection, and disbursement of the financial resources of the organization Oversee the administration, collection, and disbursement of the financial resources of the organization Advise the board with respect to making significant financial decisions Advise the board with respect to making significant financial decisions

Joint Municipal/ Education Finance Committee Financial oversight plus long-term planning to maximize use of local tax dollars and facilitate more effective capital expenditures

Why do we need them? To prevent fraud, waste, and abuse To prevent fraud, waste, and abuse To provide transparency to the public concerning financial and operational activities of the town To provide transparency to the public concerning financial and operational activities of the town To improve effectiveness of local government To improve effectiveness of local government

Who Should Have One? GFOA says that audit committees are as important for smaller governments as they are for larger ones GFOA says that audit committees are as important for smaller governments as they are for larger ones GFOA urges every governing body, no matter how small, to establish an audit committee GFOA urges every governing body, no matter how small, to establish an audit committee

Typical Responsibilities Report regularly and promptly to the Board regarding matters within the scope of the Committee charge Report regularly and promptly to the Board regarding matters within the scope of the Committee charge Oversee the financial reporting and disclosure process Oversee the financial reporting and disclosure process Review the financial statements of the town with the auditor Review the financial statements of the town with the auditor

More to do… Monitor the effectiveness of the town’s internal control procedures Monitor the effectiveness of the town’s internal control procedures Ensure the Town has policy and controls to prevent fraud, waste, and abuse Ensure the Town has policy and controls to prevent fraud, waste, and abuse Review the conduct and adequacy of the audit Review the conduct and adequacy of the audit Review audit findings and the corrective action steps required to correct them Review audit findings and the corrective action steps required to correct them

And more… Investigate audit issues that appear to need investigation Investigate audit issues that appear to need investigation Other duties the Select Board may determine Other duties the Select Board may determine Create an annual report to the Select Board of how the committee discharged its duties and met its responsibilities Create an annual report to the Select Board of how the committee discharged its duties and met its responsibilities

Benefits Audit committee can focus specifically on issues related to fiscal accountability, internal controls, and financial reports Audit committee can focus specifically on issues related to fiscal accountability, internal controls, and financial reports Increases communication between auditors and governing boards about audit objectives and results Increases communication between auditors and governing boards about audit objectives and results Helps preserve objectivity and independence of the financial statement audit Helps preserve objectivity and independence of the financial statement audit Can also monitor corrective actions for Board. Can also monitor corrective actions for Board. Small towns – assist in segregation of duties issues Small towns – assist in segregation of duties issues

The Concerns: Possible higher audit costs due to extra time required from audit firm Possible higher audit costs due to extra time required from audit firm May be hard to find qualified volunteers May be hard to find qualified volunteers More staff time likely for treasurer and other staff More staff time likely for treasurer and other staff Less control of audit by management Less control of audit by management Open meeting law for committee would be a concern to some Open meeting law for committee would be a concern to some Might slow down audit Might slow down audit

What about you? Do you have an audit committee? Do you have an audit committee? Most cities and towns do not – yet. Most cities and towns do not – yet. UVM does. Vt. State College system does. UVM does. Vt. State College system does. State of Vermont does not. State of Vermont does not. How about other types of committees? How about other types of committees?

Recommended Audit Committee Make-up –Members should possess experience in Accounting, Finance, Law or General Management –A majority of audit committee members should be selected from outside of management –No officer of the town or member of any board, commission or other committee of the town, whether elected or appointed should be a member of the committee –No town employee or school employee shall be a member of the committee –The committee should be small enough to operate efficiently – no fewer than 5 and no more than 7