1. Audit Committee Roles & Responsibilities Audit Committee July 20, 2004

2. Audit Committee Roles Office of Internal Auditing Charter (Policy 1.D.) Hire Executive Director (Policy 1A.4 Part 5) Preserve Independence of Audit Function Set Tone for Ethical & Legal Conduct

3. Audit Committee Roles Approve Annual Audit Plan (June) Select External Auditors (April) –OLA –CPA firms Appraise Audit Quality –Review Audit Reports (Sept & Dec) –Annual Report (Sept) –Peer Review

4. Audit Committee Roles Monitoring –Significant Legal Violations –Unresolved Audit Findings –Performance Measurement

5. Sarbanes Oxley Act Implications for the Audit Committee Auditor Independence Audit Committee Structure & Responsibilities Ethics

6. Sarbanes Oxley Act Auditor Independence Objective is to ensure auditors: –Are free from potential or perceived conflicts –Maintain professional, arms-length relationship with management –Adequately assessing internal controls –Fulfill responsibilities diligently to detect reporting problems.

7. Comparison to Policy Auditor Independence Audit committee selects external auditor Auditors should be prohibited from non- audit work unless pre- approved by audit committee Lead audit partner should be rotated every seven years Current practice, could add to policy Contract is re-bid every three years, could require rotation as selection criteria The Act MnSCU

8. Sarbanes Oxley Act Corporate Responsibility Objective is to ensure governing board: –Acts independently of management –Acts with integrity and resolves conflicts appropriately –Understands and has expertise to examine financial reports –Is fully informed in timely manner

9. Comparison to Policy Audit Committees Governing boards shall have an Audit Committee Members must be independent Oversees external auditors Includes at least one financial expert Current Policy Current Policy, but consider adopting a Charter Consider role of candidate advisory council The ActMnSCU

10. Comparison to Policy Ethics Senior managers should adopt a code of ethics and compliance measures Confidential employee complaint channel should be created Current practice - general statutory code of ethics. Consider – legislative additions for financial reporting and disclosure responsibilities Current practice – Policy requires reporting. Consider - establishing clear channel The ActMnSCU