Audit Committees: Perspectives from an Elected Official Mary Hornbuckle, Trustee Area 4

Audit and Budget Committee Discussion Introduction and Background Governing Regulations Value of Internal Audit and Audit Committee Communication with the Committee Questions

Introduction and Background Member of the Board of Trustees since 2005 and Audit and Budget Committee Member since 2009. As a member, must have: Basic understanding governmental financial reporting and auditing, and fiscal matters/public finance Requisite interest in the budget and financial reporting issues

Introduction and Background Audit and Budget Committee Meets Quarterly 2 out of 5 Board Members serve two-year alternating terms. Chair and Vice Chair. Review/Comment Internal Audit reports/work plan. Vice Chancellor of Finance & Administration Services, Internal Audit Director, Fiscal Director. Access to outside financial expert, for advise/consult. Makes recommendations to the full Board of Trustees.

Governing Regulations There are NO legal or statutory requirements for the District to have an Internal Audit function. As “good business” the Board of Trustees approved and/or ratified: Board Policy 2220 Committees of the Board, which includes the Audit and Budget Committee. Board Policy 6400 Audits. Administrative Procedure 6400 Audits, which includes the Internal Audit Charter.

Governing Regulations The Audit and Budget Committee is governed by Board Policy (BP) 2220 (http://www.cccd.edu/boardoftrustees/BoardPolicies/Documents/Board_of_Trustees/BP_2220_Committees_of_the_Board.pdf) Purpose: Advisory role to the Board in carrying out fiduciary responsibilities related to the District’s financial oversight of financial reporting, internal controls and compliance with legal and regulatory requirements.

Governing Regulations Goals of BP 2220: Of the 10 goals of the committee, 4 relate to Internal Audit (Note: 6 relate to Budget) Support for measures to improve financial performance and internal controls. Enhanced independence and effectiveness of the Internal Audit Department. Increased employee awareness of unethical, questionable, or illegal activities. Assurance that appropriate Management action plans are implemented for audit findings and recommendations.

Governing Regulations Responsibilities BP 2220: Of the 14 goals of the committee, 3 relate to Internal Audit. (Note: 3 relate to External Audit and 8 relate to Budget) Coordinate the efforts of the Internal Audit Department so that their work is consistent with the goals and objectives of the Committee. Recommends to the Board the approval of any auditing and or consulting services. Ensures that corrective action is taken that is identified by the internal and external auditors.

Governing Regulations The Internal Audit Function is governed by Board Policy (BP) 6400 Audits (http://www.cccd.edu/boardoftrustees/BoardPolicies/Documents/Business_and_Fiscal_Affairs/BP_6400_Audits.pdf) and Administrative Procedures (AP) 6400 Audits (http://www.cccd.edu/boardoftrustees/BoardPolicies/Documents/Business_and_Fiscal_Affairs/AP_6400_Audits.pdf) BP 6400: Establishes Internal Audit as an independent activity reporting to the Chancellor, headed by a Chief Audit Executive (Internal Audit Director), and requires the activity to follow auditing standards.

Governing Regulations AP 6400: Establishes the Internal Audit Charter, which details the scope, authority, roles and responsibilities of the internal audit function. Includes types of audits, investigations, and other projects. Requires written reports and communication with management and the Board. In practice, the Audit and Budget Committee reviews reports and the draft annual strategic work plan prior to recommending presentation to the full Board.

Value of Internal Audit and Audit Committee The Audit and Budget Committee’s Output Reminds the organization that Internal Audit is responsible only to the Board and the Chancellor. Expects departments to provide information to auditors. Holds management accountable for implementing action plans in response to recommendations. Balances support for auditors with support for management team to ensure working together for the good of the District.

Value of Internal Audit and Audit Committee Audit and Budget Committee Rely on Internal Audit Bring credible, independent results to the District and call attention to areas where improvement may be needed. Meet with stakeholders and build a cooperative rapport (ie assist the organization, not “go after” people). Train and increase awareness within the organization on Internal Audit activities. Adjust the annual work plan when more immediate priorities arise (allegations of unethical activities or wrongdoing).

Value of Internal Audit and Audit Committee From the Association of Government Auditors, Journal of Government Financial Management, Spring 2009, “Characteristics of Effective Audit Committees in Federal, State, and Local Governments” (https://www.agacgfm.org/Resources/Journal-of-Government-Financial-Management/Editions/Spring-2009 Journal.aspx) Accountability/Transparency Credibility and Clout Independent Forum Extension of Governing Body Quality Advice

Value of Internal Audit and Audit Committee Real Cases from the Internal Auditor Collusion uncovered resulting in termination of several employees, student discipline, and a police report. Management updated employee handbook, changed certain operation functions. Recycling Center Investigation Inefficient practices for submitting and paying invoices resulted in late payments to vendors and cancelled classes for students. Unexplained increases in student accounts while associated expenditures decreased. Management streamlined invoice submission process. Management corrected back-end accounting protocol in Banner System. Aviation Audit

Communication with the Committee Communicate with Purpose Straight and talk, no complex themes, use clear explanations. Shorter is better (Executive Summary). Do not use acronyms without defining and eliminate buzz words/audit jargon. Direct, to the Point. What does the report NEED to convey. Expect questions. Provide calm and respectful responses.

Best Practices Audit committees and internal audit functions not only represent “good government” but are good for ANY business. Organizations should have a clear policy, charter, mission to guide an audit committee’s work and promote the Internal Audit function. Audit Committee members should support the internal audit function and reiterate its importance to the Board and to management.

Best Practices Audit Committees should serve as an open avenue of communication between the Board, the Internal Audit Department, the External Auditors, and Executive Management. Especially for organizations that are accredited or subject to regulation and oversight, implementing a strong internal audit function and audit committee will help demonstrate fiduciary responsibility.

Questions