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The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Carl Gabrini
April 19, 2016
Audit committees are an important part of municipal governance. An effective audit committee should provide a city and its citizens with competent and timely oversight of the internal controls governing financial reporting and accounting operations. Recent research by Rich and Zhang associates the presence of a municipal audit committee with higher quality internal control systems.
From July 2012 to May 2015, I served as both a member and the chair of the City of Brunswick, Georgia audit committee. During this time, I identified three significant challenges to effective operation of an audit committee. First is the committee’s commitment to understanding and following the audit committee charter. Second is the ability to fully staff the committee with qualified members. Third is building effective relationships with members of government and the community. If there is a breakdown in any one of these three areas, the effectiveness of the committee will be compromised.
The audit committee should be governed by a well-written and clearly articulated charter outlining its mission and responsibilities. The charter should focus the committee’s efforts on those areas most critical to the city. The committee’s primary responsibility is to oversee the external audit of the city’s annual financial report. While carrying out this responsibility, the committee assisted the city’s efforts to produce its first Comprehensive Annual Financial Report (CAFR), improving the financial reporting to the citizens.
It is important that new members read and study the charter. It is the compass for developing each meeting agenda and the gauge for determining the topics we take up for discussion. I recall several occasions when we needed to reference the charter to determine whether a particular matter being considered for review was appropriate subject matter for the committee. Focusing on a clear mission and specific responsibilities provided a framework to examine each issue and arrive at an appropriate conclusion.
The City of Brunswick’s audit committee consists of five members, each serving three year terms. Filling vacancies as terms expire is a challenge. The terms are defined in the charter and are normally staggered so as to avoid having multiple terms expiring concurrently. As terms expire, the chair requests advertisements be placed in the local paper to encourage citizens to apply to the City Council. Individual applicants are evaluated partly based on their knowledge of government accounting and auditing.
However, the research by Rich and Zhang indicates that having members considered financial experts may not make a significant difference in the effectiveness of the committee. While it may not be necessary to be an expert, it does help if citizens have a basic working knowledge of accounting and auditing. Possession of a basic working knowledge aids members in understanding reports and presentations, as well as knowing what questions to ask. To ensure that members have a basic working knowledge it is important the members have access to training and technical resources such as the American Institute of Certified Public Accountants (AICPA) Audit Committee Tool Kit. This helps ensure members have the requisite knowledge upon embarking on their term of service.
Maintaining effective working relationships with those on the committee and others serving within city government facilitates the committee’s ability to work cooperatively and interact with city leaders and managers. Committee members should possess excellent communications and interpersonal skills to navigate the political environment within city government.
Providing oversight should not be an antagonistic or adversarial process. It should be a collaborative process where by all those participating have a vested interest in improving the city’s system of internal controls over financial reporting and operations. There were times during my three-year term when members of the committee would cross up with one another. However, it was the willingness of the members to keep a civil tone and the ability to work out disagreements that allowed the committee to continue functioning effectively.
It is important that the committee members maintain good relationships with the city manager and finance director. The finance director attends each meeting as a nonvoting member making. It is important to ensure that the individual does not feel the meeting is a hostile environment. The city manager is often an effective advocate of the committee’s work and good source of information about policies and practices.
There is a large volume of literature about audit committees to draw knowledge from, but I found my term on the audit committee an invaluable learning experience. My service on the audit committee enhanced my knowledge and understanding of how local government actually works. I learned that to keep the committee focused, it is important to have a charter with a clear mission and charge. A properly functioning committee needs to be fully staffed with qualified volunteers willing to develop a basic working knowledge of government accounting and auditing. Finally, members need to exercise appropriate communications and interpersonal skills to work together effectively and gain the trust and cooperation of those associated with the areas we oversee.
Author: Dr. Gabrini currently teaches accounting at Columbus State University. He holds a Ph.D. in Public Administration from Florida State University, a master’s degree in taxation from the University of Central Florida, and an active CPA license issued by the State of Florida. He held various professional positions over 25 years before entering academia. Contact: [email protected]