When building a volunteer organization, optimizing volunteer resources and capitalizing on employee time are frequently the primary challenges. The common solution is to institute overarching committees of finance, nominating, programming and fundraising. However, due to this committee consolidation, audit and financial reporting responsibilities are added into the finance committee and often, despite the growth of an organization, never leave that committee – even though they should.
Understanding the critical distinction between a finance and audit committee is a natural part of the maturation process for any not-for-profit organization. Not-for-profits are always looking for ways to economize and often believe that one committee (to handle both the financial and audit oversight) will save management time and volunteer resources. While at first this may seem true, the benefits to any organization of separate and distinct audit and finance committees are too important to ignore. Diving deeper into the governance responsibilities of each committee quickly reveals the reasons why the two committee structure is important, even in smaller organizations.
At a high level, the finance committee is charged with financial practices of the organization, while the audit committee oversees the process in which these practices are carried out. An example of this distinction is that the finance committee is charged with the preparation of the organization’s budget and financial statements; whereas, the audit committee is responsible for ensuring that the financial statements are reviewed and disseminated appropriately. They seek and share the findings of the organization’s independent auditors.
Although finding educated members to both sit on each of these committees and share a passion for the client’s mission can be difficult, not-for-profit leaders believe that it is easier to establish a single committee to oversee both the finance and audit committee charges. However, a common complaint of other not-for-profit leaders is that the heavy workload of an audit/finance committee volunteer member makes it unappealing to many potential members. Separating the two committees into different volunteer responsibilities reduces the volunteer’s burden and increases the number of volunteers who remain dedicated to the organization’s mission through committee placement.
While separating the financial and audit committees may not be an easy or practical option for all not-for-profit organizations, there are substantial governance and oversight benefits that pay tremendous dividends over time.
For more information on this topic, or to learn how Baker Tilly not-for-profit team specialists can help, contact our team.