1. Each member of the audit committee should be appointed by the governing body.

Identify/solicit interested individuals, including governing body members, who wish to serve on the committee.

Forward information about interested individuals to the governing body for consideration.

Indicate in the audit committee minutes whenever a new member is appointed.

Affirm annually or whenever a change in status by any audit committee member occurs.

2. At least one member of the audit committee should have financial experience.

Ascertain that at least one member of the audit committee has sufficient financial experience to provide guidance and assistance to other audit committee members; provide training if necessary.

Acknowledge in audit committee meeting minutes which member of the audit committee is designated as having financial experience.

Affirm annually, unless there is a change in status.

3. Review the committee’s charter annually, reassess the adequacy of this charter, and recommend any proposed changes to the governing body. Consider changes that are necessary as a result of new laws, regulations, or accounting and auditing standards, including Government Auditing Standards (Yellow Book) issued by the Comptroller General of the United States.

Review the charter each year. Assess the appropriateness of each point in the charter in light of the previous year’s experience. Assess the completeness of the charter in light of new best practices and new legal, regulatory, accounting, or auditing requirements.

Report to the governing body on the appropriateness of the audit committee charter and any revisions recommended.

Review annually, unless changes are needed during the course of the year.

4. The audit committee should meet at least four times per year, and at additional times when necessary. These meetings may be combined with regularly scheduled meetings, or may be held more frequently as circumstances may require. The audit committee may ask members of management or others to attend the meetings and provide pertinent information as necessary.

In-person meetings should be held at least once each quarter. All members should be expected to attend.
Arrange meetings in accordance with the government organization’s open meeting laws.
Prepare agendas for meetings and provide to members in advance, along with appropriate briefing materials.

Prepare meeting notices and advertisements as required by open meeting laws.

Prepare minutes that document decisions made and action steps and approve them.
File meeting minutes according to open meetings laws.

Minutes should be distributed as soon as possible but no later than before the next meeting.

5. Conduct executive sessions with the independent auditors, chief executive officer (CEO), chief financial officer (CFO), chief audit executive/internal auditor (CAE), general counsel, outside counsel, director of financial reporting, controller, and anyone else as desired by the committee.

Determine reasons for which executive sessions may be conducted according to the government organization’s open meeting laws.

Establish these sessions in conjunction with quarterly meetings or as necessary.
(See the tool “Conducting an Executive Session: Guidelines and Questions” in this toolkit.

Develop action steps to be taken, if appropriate.

Review quarterly, and as necessary.

6. The audit committee shall be authorized to hire professional consultants as necessary. (This may take place any time during the year.)
See the tool “Points to Consider When Engaging External Resources” in this toolkit.

A budget should be established for this purpose.

Requests for proposals (RFPs) should be used if required by the government organization’s procurement laws.

Review the report submitted by consultant.

Review as needed.

7. Review and concur on the appointment, replacement, reassignment, or dismissal of the CAE.

(Note: some or all of this objective may not apply in those circumstances in which the CAE is an elected official.)
(See the tool “Guidelines for Hiring the Chief Audit Executive” in this toolkit.

Meet in executive session at each meeting with the CAE.
Hold special meetings as may be necessary to address appointment, reassignment, or dismissal of CAE.
The audit committee chair should be available if any unforeseen issues arise between meetings relating to the CAE.
Meet at least once annually with other members of executive management and the independent auditors to discuss the performance of CAE.

Discuss job satisfaction and other employment issues with the CAE.

Report to the governing body on the performance of the CAE including the effectiveness of the internal audit function.

Conduct ongoing reviews, as changes can be made at any time during the year.

8. Oversee the appointment of the independent auditors to be engaged by the government organization for external reporting, and establish the related audit fees. (Note: this objective does not apply when the independent auditors are mandated by laws or regulations to perform audits for external reporting purposes.)

If the audit organization provides any nonaudit services, determine that the audit organization has considered and documented its consideration of how providing these nonaudit services does not violate the requirements that the audit organization (1) not provide services that involve performing management functions or making management decisions, and (2) not audit their own work, as stipulated in Government
Auditing Standards.

Review with the full governing body any proposed discharge of the independent auditors.

(Note: this objective does not apply when the independent auditors are mandated by laws or regulations to perform audits for external reporting purposes.)
(See the tool “Request for Proposal Letter Checklist for CPA Services (Government Organization)” in this toolkit.)

At least once each year, discuss the appointment and related audit fees with management, the CAE, and the governing body.
Review total audit fee in relation to any nonaudit services being provided by the independent auditor.
Discuss the audit committee’s review of the independent auditors with the governing body.
Ascertain that the independent auditors do not perform any nonaudit service that is prohibited by generally accepted auditing standards or Government Auditing Standards.

Report on the performance of and recommend the fees to be paid to the independent auditors. Review the scope of all services provided by the independent audit firm throughout the government organization.

Review soon after year end, so that the recommendations for next year’s external audit requirements can be met.

9. In cases where the use of a particular independent auditor is not specified by law or regulation, consider establishing a regular schedule for periodically re-bidding the audit contract with an outside CPA firm.

(See the tool “Request for Proposal Letter Checklist for CPA Services (Government Organization)” in this toolkit.)

Create a regular schedule to re-bid the audit contract.

Document the schedule in audit committee meeting minutes.

Review schedule annually as part of the evaluation of independent auditors, and determine if the schedule needs to be accelerated.

10. Review with management the policies and procedures with respect to the government organization’s public officials’ and management’s use of expense accounts, public monies, and public property, including, for example, their use of the government organization’s vehicles. Consider the results of any review of these areas by the
internal auditor or the independent auditors.

Review policies and procedures annually. Discuss with CAE the need for testing by either the internal auditors, independent auditors, or other parties.

Report issues, if any, to the governing body.

Review policies and procedures at the second quarterly meeting and discuss audit plan.
Review any significant findings as they arise.

11. Consider, with management, the rationale for employing audit firms other than the principal independent auditors for services that the government organization or the independent auditor determine would not be appropriate for the principal independent auditor to perform.

If the independent auditor is being considered to provide nonaudit services, ensure that the auditor has considered how these services would impact its independence with respect to the financial statement audit, as required by Government Auditing Standards.

Use RFPs for engaging auditors or other professionals for nonaudit or other services that the auditor cannot perform.
Review compliance with the policy by management.
(See the tool “Request for Proposal Letter Checklist for CPA Services (Government Entity)” in this toolkit.)

Document auditor selection criteria. Also, use a decision matrix to evaluate and document independent auditor selection.
Review engagement letter for each engagement.

12. Inquire of management, the CAE, and the independent auditors about significant risks or exposures facing the government organization; assess the steps management has taken or proposes to take to minimize such risks to the government organization; and periodically review compliance with such steps.

Create a portfolio that documents the material risks that the government organization faces. Update as events occur. Review with management and the CAE quarterly, or sooner if necessary, to make sure it is up-to-date.

Submit a risk report including mitigation strategies and quantifiable risks and insurance to cover such risks, e.g., loss of business.

Review at least once each year, and more frequently if necessary.

13. Review with the independent auditor, the controller/finance director of the government organization, and the CAE, the audit scope and plan of the internal auditors and the independent auditors. Address the coordination of audit efforts to assure the completeness of coverage, reduction of redundant efforts, and the effective use of audit resources.

Meet with independent audit partner, the controller/finance director, and the CAE to discuss scope of the previous year’s audit, and lessons learned. Later, discuss planned scope for audit of current year.

Document the meeting in the audit committee meeting minutes.

At the second-quarter meeting each year, review the scope of the previous year’s audit, and the interrelationship between the internal and independent auditors with respect to the scope of the independent auditors’ work.

At the third-quarter meeting each year, review the plans for the audit of the current year.

14. Review with management and the CAE:
• Significant findings on internal audits during the year and management’s responses thereto
• Any difficulties the internal audit team encountered in the course of their audits, including any restrictions on the scope of their work or access to required information
• Any changes required in the scope of their internal audits
• The internal audit department budget and staffing
• The internal audit department charter
• The internal audit department’s compliance with applicable standards (for example, Government Auditing Standards, or the Institute of Internal Auditors’ (IIA’s) Standards for the
Professional Practice of Internal Auditing)

Review reports of all internal audits from the preceding 12 months and planned for the upcoming six months along with the status of each planned audit.

Review and discuss the findings for each audit completed since the prior meeting, and management’s response to the report.

Discuss the internal audit department budget and staffing with the CAE.

Discuss the internal audit department’s compliance with applicable standards, including the requirement for a peer review once every three years.

Report on the status of all internal audits planned for the next quarter and/or year.

Review at each meeting.

15. Inquire of the CEO and CFO regarding the fiscal health of the government organization as well as the financial status of the government organization in relation to its adopted budget.

Discuss the fiscal health of the government organization and its financial status in relation to the adopted budget with the CEO, CFO, and other executives. Identify any issues addressed, and their resolution.

Include in agenda for executive sessions.

See the tool “Conducting an Executive Session: Guidelines and Questions” in this toolkit.

Review, as necessary, but at least annually.

16. Review with the independent auditors and the CAE:
• The adequacy of the government organization’s internal controls including computerized information system controls and security
• Any related significant findings and recommendations of the independent auditors and internal auditors together with management’s responses thereto
(See the tools “Internal Control: A Tool for the Audit Committee” and “Fraud and the Responsibilities of the Government Audit Committee” in this toolkit.)

Review the reports of the internal audit team for all audits completed since the prior audit committee meeting.
Review key internal controls with the CAE, and understand how these controls will be monitored during the year.
Review these plans with the independent auditor to understand their scope with respect to key controls.
Review with the CAE the plans for audits of other elements of the control environment.
Determine that all internal control weaknesses are quantified, reviewed, and addressed.

Report to the governing body on issues relating to internal controls, with emphasis on management’s ability to override controls and related monitoring.

Submit a comprehensive report to the governing body at the second-quarter meeting each year.

Update on anything new, or any changes to the internal control system, at every meeting.

17. Review with management and the independent auditor the effect of any regulatory and accounting initiatives, such as related organizations financing structures, derivatives, or securities lending.

Independently, through professional reading and CPE, keep up-to-date on new developments related to the government environment, including any regulatory and accounting requirements the government may be subject to.
Discuss with management and the independent auditors in meetings.
(See the tool: “Management’s Summary of Unique Transactions and Financial Relationships” in this toolkit.)

Record discussion and any action steps in audit committee meeting minutes.

Review as necessary.

18. Review with the independent auditor that performs the financial statement audit:
• All critical accounting policies and practices used by the government organization
• All alternative treatments of financial information within generally accepted accounting principles that have been discussed with the government
organization’s management, the ramifications of each alternative, and the treatment preferred by the government organization

Discuss each matter, and related matters that may come to the attention of the audit committee and/or the independent auditors through this process.

Create an action plan and follow-up plan as necessary.

Submit reports and documentation of discussions and resolution of disagreements.

Review, at least annually, and/or in conjunction with the year-end audit.

19. Review all significant written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences.

Discuss each item with the independent auditors and management (including the CAE) and conclude on the appropriateness of the proposed resolution.

Submit reports and documentation of discussions, resolution of issues, and the action plan for any items requiring follow-up and monitoring.

Review at the completion of the independent audit.

20. Review with management and the independent auditors:
• The government organization’s annual financial statements, related footnotes, and management’s discussion and analysis
• The independent auditors’ audit of the financial statements and their report thereon
• The independent auditors’ judgments about the quality, not just the acceptability, of the government organization’s accounting principles as applied in its financial reporting
• The independent auditors’ single audit of the federal awards administered by the government organization and their reports thereon
• Any significant changes required in the independent auditors’ audit plan
• Any serious difficulties or disputes with management encountered during the audit
• Matters required to be discussed by Statement on Auditing Standards (SAS) No. 61, Communication With Audit Committees (AICPA, Professional Standards, vol. 1, AU sec. 380), as amended; U.S. Government Accountability Office’s Government Auditing Standards; and the U.S. Office of Management and Budget’s Circular A-133 related to the conduct of the audits

Discuss each matter, and others that may come to the attention of the audit committee through this process, with management (including the CAE) and the independent auditors.
Review with management the course of action to be taken for any action requiring follow-up.

Monitor any follow-up action that requires continued audit committee intervention.

(See the tool “Discussions to Expect from the Independent Auditor” in this toolkit.)

Submit reports and documentation of discussions, resolution of disagreements, or action plan for any item requiring follow-up.

Review at the completion of the independent audit.

21. Review with the general counsel and the CAE legal and regulatory matters that, in the opinion of management, may have a material impact on the financial statements and compliance with federal, state, and local laws and regulations.

Discuss whether the government organization is in compliance with applicable laws and regulations.

Report to the governing body that the review has taken place and any matters that need to be brought to its attention.

Review at each meeting.

22. Periodically review the government organization’s code of conduct to ensure that it is adequate and up to date.
Review with the CAE and the government organization’s general counsel the results of their review of compliance monitoring with the code of conduct.

Review results with the CAE and general counsel. Consider any adjustments that may be necessary to the government organization’s code of conduct.
Consider steps that may need to be taken to ensure that compliance is at the highest possible level.

Report to the governing body that the review of the code of conduct was done.
Recommend changes to the code of conduct to the governing body as needed.

Review annually at the fourth-quarter meeting.
Review any significant findings as they arise.

23. Review the procedures for the receipt, retention, and treatment of complaints received by the government organization regarding accounting, internal accounting controls, auditing matters, or suspected fraud that may be submitted by any party internal or external to the organization.
Review any complaints that might have been received, current status, and resolution if one has been reached.

Review procedures with the CAE and the general counsel.
Review all complaints that have been received and the status of resolution.
Ensure that proper steps are taken to investigate complaints and resolve them in a timely manner.

See the tool: “Anonymous Submission of Suspected Wrongdoing: Issues for Government Audit Committees to Consider” in this toolkit.

Review an original of each complaint received, no matter the media used to submit them. Discuss the status or resolution of each complaint.
Review a cumulative list of complaints submitted to date for common patterns or other observations.

Review at each meeting.

24. Review procedures for the confidential, anonymous submission by the government organization’s employees of concerns regarding questionable accounting or auditing matters, or suspected fraud.

Review any submissions that have been received, the current status, and the resolution if one has been reached.

Review procedures with the CAE and the general counsel.

Review all complaints that have been received and the status of resolution.

Ensure that proper steps are taken to investigate complaints and resolve them timely.

 Review an original of each complaint received no matter the media used to submit them. Discuss the status of resolution of each complaint.

Review a cumulative list of complaints submitted to date for common patterns or other observations.

Review at each meeting.

25. The audit committee should evaluate the independent auditors and internal auditors.

Use information from audit committee meetings and executive sessions conducted throughout the year.
Use a formal assessment tool for each group.
See the tools: “Evaluating independent Auditors:
Questions to Consider” and “Evaluating the Internal Audit Team: Guidelines and Questions” in this toolkit.

Submit recommendations for changes in process and procedures.

For independent auditors, request RFPs if changes are being considered. (Note: this deliverable does not apply when the independent auditors are mandated by laws or regulations to perform audits for external reporting purposes.)

Review after completion of the annual audit cycle.

26. The audit committee should review its effectiveness.

The audit committee should conduct a self-assessment and 360-degree evaluation of all members.
See the tool: “Conducting an Audit Committee Self-Evaluation: Guidelines and Questions” in this toolkit.

Discuss recommendations for improving the effectiveness of the audit committee with the governing body.

Review annually.

27. Create an agenda for the ensuing year or review and approve the agenda submitted by the CAE.

Complete the “Audit Committee Charter Matrix.”
(Use this tool as a sample, and tailor it to your organization.)

Review at the fourth-quarter meeting for the upcoming year.