Role of the Audit Committee CSMFO Annual Conference

Role of the Audit Committee CSMFO Annual Conference February 2009 City of Belmont Thomas Fil Finance Director, CPA, CPFO

Background • City’s Finance Commission is Audit Committee – Quasi independent – Self selected • Council eliminates self selection • Creates Audit Committee to the governing body – Two City Council members – Elected City Treasurer • Follows Government Finance Officer Association’s (GFOA) best practices • Revises Audit Committee financial policies

Audit Committee Responsibility • Responsibility for quality of financial reporting – City Council – First among equals – An audit committee provides independent review and oversight – Forum separate from management – Auditors and other interested parties candidly discuss concerns – Ensure staff properly develops and adheres to a sound system of internal controls – Procedures are in place to objectively assess management’s practices – Independent auditors, through their own review, objectively assess the City’s financial reporting practices – Management – Independent auditors

Audit Committee Policy • City Council is responsible for establishing an audit committee or its equivalent – Established by policy – Enabled by resolution – Directly responsible for the appointment, compensation, retention, and oversight of the work of any independent accountants • Policy prescribes the scope of the committee’s responsibilities – Structure – Processes – Membership requirements • Periodically review policy - no less than once every five years • Audit committee should have access to the services of at least one financial expert

Audit Committee Structure • No fewer than three members – Sufficient size for meaningful discussion, but not impede operation • Audit Committee access to the services of financial expert – Financial expert should, through both education and experience, possess – Understand GAAP – Experience in preparing or auditing financial statements – Experience in applying principle for estimates, accruals, and reserves – Experience with internal accounting controls – Understand Audit Committee functions • No governing body member with managerial responsibilities on Audit Committee

Audit Committee Process • Provide independent review and oversight of financial reporting processes, internal controls and independent auditors Present annual written report • – – – • Establish process for complaints – • • Discussed the financial statements with management, the Finance Commission, the independent auditors in private, and privately among committee members Believes financial statements are fairly presented, to the extent such a determination can be made solely on the basis of such conversations Report be made public Confidential, anonymous submission by employees of the government of concerns regarding questionable accounting or auditing matters Adequately funded and authorized to engage experts Periodically review policy - no less than once every five years

Annual Report

Audit Committee Members • • • Members of the governing body or hold the elected position of City Treasurer Possess basic understanding of governmental financial reporting and auditing Educated regarding role of the audit committee and their personal responsibility as members, including their duty to exercise an appropriate degree of professional skepticism

Audit Committee Sources • • • References Report and Recommendations of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees, Overview and Recommendations SEC Regulation 33 -8220, Background and Overview of the New Rule and Amendments Sarbanes Oxley Act, Section 301 and Section 407. SEC Regulation 330 -8220, Background and Overview Audit RFP Diskette, GFOA Belmont City Code, Section 2 -158 (3)