Establishment of an audit committee benefits the school board with its overall oversight responsibilities and is recommended in all but the smallest of school districts. One of primary roles of the audit committee is to help the board of trustees understand and collaborate with the internal audit and annual (external) audit processes. An audit committee is especially helpful in helping ensure the school board carries out their fiscal oversight responsibilities, which can involve the review and discussion of a level of details and volume of information that are not practical to review in a regular board meeting setting.
Traditional roles for the audit committee include:
- Serve as a liaison between the board of trustees, and internal and external auditors.
- Make recommendations to the board regarding the selection and approval of internal and external auditors.
- Review and discuss the risk assessment developed in the audit planning processes.
- Ensure high risk areas and key control activities are periodically evaluated and tested.
- Review the interim results of audit activities.
- Receive and review draft audit reports and any management letters.
- Make recommendations to the board in connection with the school district’s acceptance of audit reports.
- Monitor management’s plans to address internal control issues identified by the auditors.
- Monitor management’s activities to implement corrective action plans to address any significant internal control issues or material weaknesses identified by the auditors.
- Evaluate of the overall performance of the internal audit function and ensure the internal audit function has sufficient resources.
The audit committee may be comprised of three or more board members and at least one member should have financial literacy skills. Members of the audit committee should not have any reportable substantial interest in an entity that is doing business with the district. It is also beneficial if the audit committee has a good rapport with the executive management office that the internal audit function is organized under on the district’s organization chart as a practical matter, although the Texas Internal Audit Act states that the internal auditor is to report directly to the governing board (Government Code Section 2102.007).
An audit committee has improved the effectiveness of the board in many school districts in accomplishing their financial management- and internal control- related oversight roles under Section 11.051 of the Texas Education Code.