School Board Audit Committee Training

Module 1

Roles, Responsibilities and Relationships

1

2

Session objectives

After completing this session you will:

Be able to apply best practices in effective audit committee governance

Understand the role and accountabilities of the audit committee

Understand the duties of the audit committee as defined in the Education Act – 0.Reg 361/10, Section 9

3

What is Governance?

A definition:

Governance refers to the processes and structures usedto direct and manage an organization’s operations andactivities. It defines the division of power, and establishes mechanisms to achieve accountability among stakeholders, the board of directors/trustees and management. (Source: Deloitte-The Effective Not-for Profit Board)

The developing role of the audit committee in the school board environment is very much connected to the idea of promoting sound governance.

4

• Benefits of good governance systems:– Helps organizations focus on the activities which contribute most to their

overall objectives.– Helps organizations utilize resources for maximum effectiveness. – Helps ensure the organization is managed in the best interests of its

principal stakeholders.

Importance of Governance

5

Auditors

Audit Committee

Board

Management

The Traditional Model of Governance

(Source: Integrity in the Spotlight – Opportunities for Audit Committees)

6

Keep them informed. But not TOO informed.

BoardMeeting

Governance

7

Board

Auditors Management

Audit Committee

(Source: Integrity in the Spotlight – Opportunities for Audit Committees)

The New Model of Governance

8

GovernanceExercise

At your tables discuss the benefits and challenges relating to the new governance model.

9

The Right PeopleThe Right PeopleAccountability,Reporting and

Evaluation

Accountability,Reporting and

Evaluation

Mandate And Charter

Mandate And Charter

InformationAnd Processes

InformationAnd Processes

ManagingRelationships

ManagingRelationships The Right PeopleThe Right PeopleAccountability,

Reporting andEvaluation

Accountability,Reporting and

Evaluation

Mandate And Charter

Mandate and Charter

InformationAnd Processes

Informationand Processes

ManagingRelationships

ManagingRelationships

(Source: Integrity in the Spotlight – Opportunities for Audit Committees)

Elements of Audit Committee Effectiveness

Role and Accountabilities of the Audit Committee Duties of the Audit Committee [ON Regulation 361/10]

10

Audit Committee

of the Board has duties

related to

Financial Reporting Process

Financial Reporting Process

Internal ControlsInternal Controls

External AuditorExternal Auditor

Internal AuditorInternal Auditor

Compliance Matters

Compliance Matters

Risk ManagementRisk Management

Many duties are completed by the Audit Committee with updates from Management and the external and/or internal auditors

Role and Accountabilities of the Audit Committee Duties related to the Financial Reporting Process [ON Regulation 361/10 9(1)]

• To review the School Board’s financial statements• To review the results of the external audit • To recommend, to the Board of Trustees, the approval of

the annual audited financial statements • To review matters that the external auditor is required to

communicate to the Audit Committee under generally accepted auditing standards

• To review with the external auditor material written communications

11

Role and Accountabilities of the Audit Committee Duties related to internal controls [ON Regulation 361/10 9(2)]

• To review the overall effectiveness of internal controls

• To review the scope of the internal and external auditor’s reviews of internal controls, as well as the findings, recommendations and management’s responses

• To discuss with the School Board officials the significant financial risks and the measures the officials have taken to monitor and manage these risks

12

Role and Accountabilities of the Audit Committee Duties related to the internal auditor [ON Regulation 361/10 9(3)]

• To review the internal auditor’s mandate, activities, staffing and organizational structure

• To make recommendations on the content of the internal audit plan and on all proposed major changes to the plan

• To ensure there are no unjustified restrictions or limitations on the scope of the annual internal audit

• To review at least once in each fiscal year the performance of the internal auditor and provide comments regarding his or her performance

• To review the effectiveness of the internal auditor, including the internal auditor’s compliance with standards for internal auditing

• To meet on a regular basis with the internal auditor • To review findings, recommendations and any difficulties encountered in the

course of the internal auditor’s work

13

Role and Accountabilities of the Audit Committee Duties related to the external auditor [ON Regulation 361/10 9(4)]

• To review the performance of the external auditor and make recommendations to the Board on the appointment, replacement or dismissal of the external auditor and on the fee and fee adjustment for the external auditor

• To review the external auditor’s audit plan• To review and confirm the independence of the external auditor• To meet on a regular basis with the external auditor and discuss important

matters• To resolve any disagreements between management and the external

auditor about financial reporting• To recommend to the Board a policy designating services that the external

auditor may perform for the School Board and, if the Board adopts the policy, to oversee its implementation

14

Role and Accountabilities of the Audit Committee Duties related to compliance matters [ON Regulation 361/10 9(5)]

• To review the effectiveness of the School Board’s system for monitoring compliance with legislative requirements and with the School Board’s policies and procedures and follow up on any non-compliance

• To review any significant findings of regulatory entities, and any observations of the internal or external auditor related to those findings

• To review the School Board’s processes for communicating any applicable codes of conduct and for administering those codes of conduct

• To obtain regular updates from management and legal counsel regarding compliance matters

• To obtain confirmation from the Director of Education and supervisory officers that all statutory requirements have been met

15

• To inquire about significant risks

• To review the School Board’s policies for risk assessment and risk management and to assess the steps taken to manage such risks (i.e. internal controls, the adequacy of insurance)

• To perform other activities related to the oversight of the School Board’s risk management issues or financial matters, as requested by the Board

• To initiate and oversee investigations, as appropriate

16

Role and Accountabilities of the Audit Committee Duties related to risk management [ON Regulation 361/10 9(6)]

• To report to the Board of Trustees annually, and at any other time the Board of Trustees may require, on the committee’s performance of its duties

• To make a reasonable effort to post ON Regulation 361/10 on the Board’s website

17

Role and Accountabilities of the Audit Committee Other Duties [ON Regulation 361/10 9(7) and 9 (8)]

18

Clear Expectations

High QualityAccurate, Complete

TimelyInformation

(Charter and Work Plan)

Meetings• Agenda• Time•Presentations• In-camera

What Information(Priorities andLevel of Detail)

Preparation•Who (management,Auditors)•When (advance of

Meeting; at meeting)

Reporting• Minutes• Council/Board• External

Feedback(Role of Chair)

Action•Decisions•Follow-up

(Source: Integrity in the Spotlight – Opportunities for Audit Committees)

Role and Accountabilities of the Audit Committee Doing the right things right: Key components

Clear Expectations

• Reporting to the Board. This is chairperson’s key responsibility• Manage meetings• Setting meeting agendas and prioritize the issues contained under each topic• Forging and enhancing relationship with management• Enhancing the relationship with internal and external auditors• Enhancing the relationship with Board of Trustees• Provide feedback to management and external and internal auditors• Creating an appropriate Audit Committee charter and work plan• Ensuring the continuing education of the members of the Audit Committee• Dealing with the tough issues• Awareness of developments in internal and external environment• Consider special topics ( e.g. new developments in accounting standards)

19

Role and Accountabilities of the Audit Committee The role of the Audit Committee Chair

(Source: Integrity in the Spotlight – Opportunities for Audit Committees)

20

Role and Accountabilities of the Audit Committee Attributes of an effective Audit Committee Chair

Effective Chair

FinanciallyLiterate

Engaged and Collaborative

Informed Decisive

• Audit Committee member is a volunteer position, no remuneration to be received

• Conflicts of interest must be declared to the Chair of the Audit Committee

• Audit Committee members are required to complete periodic self assessment of performance

• Confidentiality agreement must be signed at the beginning of the appointment

• A minimum of two months notice should be given before resignation

21

Role and Accountabilities of the Audit Committee Audit Committee Member Requirements

Source: http://faab.edu.gov.on.ca/audit.html

• An Audit Committee of a Board shall meet at least three times in each fiscal year at the call of the chair of the committee, and at such other times as the chair considers advisable but only twice during 2010-2011 fiscal year

• Refer to toolkit for proposed Audit Committee meeting schedule and agenda topics

22

Audit Committee Meeting Scheduling

Source: ON regulation and Ministry of Education website

• Strong agenda – focus, achievable, results oriented

• Attendance

• Logistics

• Facilitation

23

Audit Committee Meeting ManagementFundamentals of a good meeting

Source: Deloitte

24

Audit Committee Meeting ManagementSetting the agenda

• Each meeting agenda should tie back to the Committee’s work plan and terms of reference (Regulation 361/10)

• Agendas should be set by the Committee Chair with input from management and Committee members

Meeting Agenda Challenges• Date and time• Inadequate preparation of

agenda by the Committee Chair• Level of agenda detail• Comprehensiveness of agenda• Timing of distribution of agenda

items• Relation of agenda items to

information packet• Degree of flexibility or rigidness in

adherence during the meeting• Preparing presenters for the

appropriate tone and timing• Having all presentation aids pre-

tested

Source: Deloitte

Audit Committee Meeting ManagementManaging Participants attendance and attention

25

Part 1: Welcome(quorum, approval of agenda, declaration of conflicts)

Part 2: Minutes(approval of minutes of previous meeting)

Part 3: Announcements(non-controversial, short)

Part 4: Information Items(non-controversial, not requiring decisions)

Part 5: Decision Items(potentially controversial, requiring decision or action)

Part 6: Discussion Items(often presented for vote/decision during Part 5 of subsequent

meeting)

Part 7: Information Items(non-controversial, positive, often the starting place of next meeting)

Source: Deloitte

26

• Several key principles for meeting logistics are constant:– Members should be able to

easily see one another– Room should be at

comfortable temperature– Adequate space for

planners, notebooks or laptops is essential

– People should be able to easily hear the discussion

Issues• Location neutrality• Seating arrangement• Climate control• Time of day• Format (in-person, video

conference, teleconference)• Frequency• Duration• Special guests

Audit Committee Meeting ManagementLogistics

Source: Deloitte

Audit Committee Meeting ManagementFacilitation

27

Ask Questions

• A focus on the process of arriving at conclusions must be balanced with discussing the conclusions themselves

• Ask questions that draw out process-based explanation

Manage Time

• Manage discussion to follow the flow and timing set by the agenda

• Monitor the need for increased rigidness or flexibility depending on the criticality of the discussion

Assign Accountability

• Discussion without follow-up or action results in generally ineffective implementation of Committee recommendations

• Assign accountability for implementation during meetings

Encourage Participation

• Different alternatives ensure that full information is shared and increases the likelihood of discovering a superior solution

• Ensure airtime is shared equally

• Encourage debate and expression of views

Monitor Dynamics

• Diversity brings new ways of thinking about the issue but may introduce dissent, conflict or reduced morale

• Focus conflict on innovative solutions

• Ensure all views are tabled in the meeting, not after

Source: Deloitte

Conflict ResolutionWhat lies behind most conflicts?

• Lack of communication• Lack of information or interpretations of available information• Different needs or interests• Struggle over power or authority• Different ways of understanding the world

28

Source: 2006 Non-Profit Sector leadership program, Dalhousie University

Conflict Resolution A strategy for confronting conflict

• Confronting a conflict situation almost always can benefit from face-to-face communication amongst the parties involved, either a series of meetings with individuals and/or a group meeting involving all of the parties

• Rely on the involvement of an individual who has the respect of everyone to facilitate the process

•  Arrange a special meeting or a series of private meetings, not a Board meeting.

• Avoid secret meetings; the process needs to be transparent. • Ensure that everyone understands that the process is not one that will result

in organizational decisions or commitments although recommendations, if an agreement is reached, may be made by the parties to the Board.

• No formal minutes or notes of conflict resolution .The outcome, if the parties agree, can be reported

29

Source: 2006 Non-Profit Sector leadership program, Dalhousie University

• Regulation requires that the Audit Committee report to the Board of Trustees

• Where the Audit Committee is bringing forward a recommendation for the Board to adopt, the recommendation should be in writing.

• Every year, no later than November 30, the Audit Committee will present an annual report

• The Toolkit for this training and the Ministry of Education website has samples for required reporting.

30

Reporting to the Board of Trustees

Source: Ministry of Education website – Guideline on Audit Committee reporting

Reporting to the Board of Trustees

The annual report is to include: • summary of work performed by the committee• attendance record• internal audit results • assessment of Board’s progress in addressing findings • recommendations made by internal and external auditor• other relevant matters

31

Source: Ministry of Education website – Guideline on Audit Committee reporting

Due diligence considerations

• Duties and Obligations of Individual Members

• Standard of Care

• Fiduciary Care

• Business Judgment

• Board Code of Conduct

• Conflict of Interest

• Confidentiality

32

33

Governance vs. ManagementWhere is the right side of the line?

Board (through its various committees)

• Governs the activities of the school board

• Sets strategic direction for the school board

• Monitors management and organizational performance

• Reports to various stakeholders

• Selects, supervises, assesses performance of Director of Education

Management• Manages day to day operations of the school board

• Charged with implementing the strategic plan

• Responsible for internal and external relationships

• Identifies and manages enterprise-wide risks

Source: Deloitte

Governance vs. ManagementDiscussion Question

Based on your experience what are the greatest challenges in

maintaining the line between the role of an audit committee member

and the role of management?

34

Powers of the Committee [ON Regulation 361/10 ]

In carrying out its functions and duties, an Audit Committee of the Board has the power to:• With Board’s approval, retain counsel, accountants or other professionals to

advise or assist the committee• Meet with or require the attendance of Board members, school board staff,

internal or external auditor or legal counsel or other representatives, and require such persons or entities to provide any information and explanation that may be requested

• Meet with the Board’s external or internal auditor or any staff of the School Board, without the presence of other School Board staff or Board members, other than Board members who are members of the committee

• Require the internal or external auditor to provide reports to the committee• Have access to all records that were examined by the internal or external

auditor

35