The recent release of audit committee guidelines for New York nonprofits underscores the increasing importance that state charity officials ascribe to the role of this key committee.
The guidelines are a detailed, nine-page, single-spaced summary of audit committee requirements and responsibilities arising from the recently (2017) updated New York Not-For-Profit Corporation Law. They were prepared by the highly regarded Charities Bureau of the state attorney general’s office.
Two elements of the guidelines are broadly notable. First is the emphasis on (and definition of) independent director composition of the committee. Second is a specific, non-exclusive articulation of the duties of committee members, which focuses on a variety of matters relating to relationships with outside auditors/CPAs; oversight of tax return filings and implementation of financial controls; oversight of risk assessments and risk response plans; monitoring material legal matters; directing internal investigations as necessary; and periodic review of the organization’s insurance profile.
This focus indirectly serves to prompt reconsideration by nonprofit health systems of the sufficiency of the composition and meeting schedule of the committee; as well as the practice of combining multiple important oversight tasks (e.g., compliance and risk) within the traditional responsibilities of the audit committee—especially for large, sophisticated health systems.
Note in this regard the historical willingness of the Charities Bureau to pursue breach of fiduciary duty enforcement actions against nonprofit directors, and (recently) professional advisors to nonprofits (based upon allegations of fraud).