In a challenging economy, a focus on corporate governance is imperative.  Now more than ever a nonprofit entity should ensure its funds are being used in the most productive ways possible.  Most nonprofits are dealing with a reduction in donations and less investment income, leaving no margin of error for waste.  Efficiency and financial responsibility are accounting issues of the utmost importance to the nonprofit sector. Nonprofit entities typically have obligations to a variety of stakeholders, often including the public constituency, its donors, and governing bodies.  Thus, nonprofit leaders must ensure that funds are only being allocated to accomplish stated missions.

A well constituted audit committee can provide valuable oversight on such financial issues.   A good audit committee ensures proper financial management since a “duty of care” is expected from its committee members.  At least one member of the audit committee should be considered “financially literate” and members should be independent of the organization so that there is an objective and impartial approach to corporate governance.  If a qualified individual is not readily available, an outside consultant should be retained to guarantee this objective is being met.

Audit committees provide a variety of benefits to nonprofits.  An audit committee can implement an enhanced internal control structure, deter fraud, improve financial practices, advance financial reporting, and help nonprofits meet their accountability goals.  Additionally, they can assist an organization with managing their external audit and other financial and governance issues throughout the year.  An audit committee aids fiscal responsibility, improves financial reporting, and assists with developing a sound internal control structure.

In summary, leaders of nonprofits can benefit from lessons learned by their for-profit contemporaries. A well-staffed audit committee is one of the best ways for the nonprofit sector to improve internal control structures, address fiscal responsibilities, and prevent mismanagement of funds.