In my close to three decades of corporate life, I have had the privilege of serving as the Audit Committee Chairperson of two non-profits. I shall not name those two but will sketch in broad strokes the snippets of experience that I gained over a combined close to 10 years experience serving on them.
One of them was a relatively small professional association (P1) where the role of the Audit Committee Chair was more straightforward, that is to exercise oversight and review the financial statements before it was tabled before members at the Annual General Meeting.
For that committee, technically, it was not too difficult but the issues that arose were more due to personality differences between Audit Committee members and the Board Members who were in charge of the association.
The other Audit Committee involved another larger non-profit entity (P2) that had operations across Singapore. My term of service there was where I encountered many interesting issues that have shaped my experience to-date.
I was initially roped into the Audit Committee of P2 because the then Audit Committee Chair was my old colleague from a previous organization. I learnt a lot from my old colleague (whom I fondly refer to as “advisor san”) from how he dealt with the matters that were tabled before the Audit Committee as well as matters on how to handle the different personalities amongst the Audit Committee as well as the management of the P2.
What I learnt during my stint on P2 as both an audit committee member and the Audit Committee Chair are as follows:
Know Your Role
The role that each Audit Committee plays is typically covered under Terms of Reference or in the case of associations possibly the by-laws. It is important to understand these well because many of the governance and oversight functions are covered under these documents.
Know Your Members and Management
The interpersonal dynamics of both the audit committee as well as how receptive management are to handling internal control and governance issues has a significant bearing on how effective the audit committee can be.
I remember we had an audit committee member who was very energetic and enthused about instructing and “nagging” management to do A, B and C. Whilst we could applaud his enthusiasm and zeal, he failed to distinguish between the governance and oversight role of the audit committee against the executive and operational responsibilities of management.
At the end of the day, the audit committee’s ambit is to advise and recommend and to align management’s responses to mitigating the risks as identified by external, internal auditors or by management themselves. The audit committee is not to step in to take executive action.
Know the Issues and Risks
There will be a myriad of audit, risk and control issues being raised to the audit committee. Due to limited resources, the prioritization of the risks of the issue need to be well articulated so that the organization does not run around chasing after every single shadow, but tackles the high risk and critical issues first before moving on to the others.
Know the Hierarchy
P2 was a non-profit association that had many stakeholders and had even higher level authorities that it reported to. I remember being invited to attend the audit committee meeting of the next higher authority to explain and clarify on how at P2 level we were managing the risks arising from the issues raised. This was because the higher authority on occasion sent their internal audit team to audit P2.
Fortunately, I had decades of experience as a former Head of Internal Audit and had spent a lot of time answering to my own audit committee chair’s queries so very few questions fazed me.
Know the Questions to Ask
The responsibility and power of the audit committee is to ask really good questions about what management is doing, can do and should do to mitigate the risks after considering the risk-returns trade-off. Certain statutory and legal requirements require 100% compliance, but many other control issues have to be balanced against the costs of implementation versus the benefit from the enhanced controls.
My years as a former Audit Committee Chairman exposed me to real life fraud scenarios as well as the interplay of personal dynamics in the committee.
Share in the comments how was your experience interacting with audit committees.
I would love to hear from each of you.
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