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| March 15, 2004 | The
Monthly Newspaper of the NYSSCPA |
Vol.
7, No. 5 |
Government Entities Consider Audit Committees
New York Official Sees Advantages in Trend
By Dan Horan
Optional audit committees serve a purpose in the government environment, New York City Assistant Comptroller for Accounting Warren Ruppel recently explained.
Ruppel told members of the New York State Society of CPAs’ Government Accounting and Auditing Committee that while the Sarbanes-Oxley Act of 2002 does not apply to the public sector, government has always had to respond to the demands of its constituents. Governing bodies often question the effectiveness of their governing process in order to meet this demand. This means they could be open to the idea of an audit committee if they don’t already have one, he said.
Ruppel, the committee’s vice chair, led the discussion during the committee’s regular meeting on Jan. 16. He said that users of financial reports as well as public expectation may force public sector entities to have audit committees. Given the role of the audit committee, Ruppel said, it seems likely the public sector would embrace the concept.
Within the public sector, an audit committee is an extension of the governing body. Both the Government Finance Officer Association (GFOA) and the Office of Management and Budget (OMB) recommend the establishment of audit committees or their equivalent. The typical audit committees’ responsibilities include:
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Approving the overall audit scope.
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Helping to ensure the audit is conducted in an efficient and cost effective manner.
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Overseeing the organization’s financial statements and internal control.
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Recommending to the governing body the approval of the organization’s financial statements.
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Recommending the external auditor and the appropriate fee.
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Directing special investigations for the governing body.
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Risk management oversight is a common role for all audit committees. One area of risk management is fraudulent activities resulting from weaknesses in external controls.
Ruppel said there is a trend for governments to adopt Sarbanes-Oxley–style audit committees. Under Sarbanes-Oxley, audit committees must be composed of one financial expert and directors who meet the independence requirements of the act. The committee has the authority to engage independent counsel and other advisors as it deems appropriate.
The committee is also directly responsible for the appointment, compensation and performance review of the independent auditor, and is charged with resolving disagreements with management and reviewing audit difficulties and management response.
Audit committees must also hold timely discussions with the auditor on policies, practices and alternative treatment of financial information within generally accepted accounting principles (GAAP), along with the ramifications of those alternative treatments.
Finally, the committee must review management certifications and reports on internal controls along with the auditor’s attestation of that report, among other responsibilities.
Though intrigued, committee members expressed concern about the availability of competent people with enough financial expertise to establish independent audit committees for government entities.
Dan Horan, managing partner with Horan Martello Morrone P.C. in Hauppauge, N.Y., is a member of the NYSSCPA’s Government Accounting and Auditing Committee.
