Role of the Audit Committee

CSMFO Annual ConferenceFebruary 2009

City of BelmontThomas Fil

Finance Director, CPA, CPFO

Background

• City’s Finance Commission is Audit Committee– Quasi independent– Self selected

• Council eliminates self selection• Creates Audit Committee to the governing body

– Two City Council members– Elected City Treasurer

• Follows Government Finance Officer Association’s (GFOA) best practices

• Revises Audit Committee financial policies

Audit Committee Responsibility

• Responsibility for quality of financial reporting– City Council

– First among equals– An audit committee provides independent review and oversight– Forum separate from management– Auditors and other interested parties can candidly discuss concerns– Ensure staff properly develops and adheres to a sound system of

internal controls– Procedures are in place to objectively assess management’s

practices– Independent auditors, through their own review, objectively assess

the City’s financial reporting practices– Management– Independent auditors

Audit Committee Policy

• City Council is responsible for establishing an audit committee or its equivalent– Established by policy

– Enabled by resolution

– Directly responsible for the appointment, compensation, retention, and oversight of the work of any independent accountants

• Policy prescribes the scope of the committee’s responsibilities– Structure

– Processes

– Membership requirements

• Periodically review policy - no less than once every five years• Audit committee should have access to the services of at least one

financial expert

Audit Committee Structure

• No fewer than three members– Sufficient size for meaningful discussion, but not impede operation

• Audit Committee access to the services of financial expert– Financial expert should, through both education and experience,

possess

– Understand GAAP

– Experience in preparing or auditing financial statements

– Experience in applying principle for estimates, accruals, and reserves

– Experience with internal accounting controls

– Understand Audit Committee functions

• No governing body member with managerial responsibilities on Audit Committee

Audit Committee Process• Provide independent review and oversight of financial reporting

processes, internal controls and independent auditors• Present annual written report

– Discussed the financial statements with management, the Finance Commission, the independent auditors in private, and privately among committee members

– Believes financial statements are fairly presented, to the extent such a determination can be made solely on the basis of such conversations

– Report be made public• Establish process for complaints

– Confidential, anonymous submission by employees of the government of concerns regarding questionable accounting or auditing matters

• Adequately funded and authorized to engage experts• Periodically review policy - no less than once every five years

Annual Report

Annual Audit Committee Report December, 2007

To the City Council of the City of Belmont:

The City’s Audit Committee consists of three elected members, two of which are from the governing body, and one holds the elected position of City Treasurer. The members are independent of all City officers, employees, and departments. To ensure the committee’s independence and effectiveness, no governing body member who exercises managerial responsibilities that fall within the scope of the audit should serve as a member of the Audit Committee. We are responsible for the appointment, compensation, retention, and oversight of the work of any independent accountants engaged for the purpose of preparing or issuing an independent audit report or performing other independent audit, review, or attest services and the confidentiality of anonymous complaints. The independent auditor reports directly to us. It is our responsibility to provide independent review and oversight of the City’s financial reporting processes, internal controls and independent auditors. We have also established procedures to for the submission and handling of anonymous complaints by employees regarding questionable accounting or auditing matters. All members of the Audit Committee should possess or obtain a basic understanding of governmental financial reporting and auditing. In achieving this objective, we have retained the services of a financial expert for this purpose. The Audit Committee’s financial expert has relevant education, governmental experience, and an understanding of the City’s Audit Committee functions. We have been educated regarding both the role of the Audit Committee and our personal responsibility as members, including their duty to exercise an appropriate degree of professional skepticism. As required by our charter, we annually report to the City Council on how we have discharged our duties and met our responsibilities. This report to City Council includes our discussion of the financial statements with management, and may summarize recommendations, if any, made as a result of private discussions with the independent auditors and amongst the Audit Committee members. In carrying out our responsibilities, we have also discussed these matters with the Finance Commission. In conclusion, we believe that the financial statements are fairly presented, to the extent such a determination can be made solely on the basis of such conversations. It is recommended that this report be made public.

Respectfully submitted,

CITY OF BELMONT AUDIT COMMITTEE

Warren Lieberman, Chair Bill Dickenson, Councilmember John Violet, City Treasurer

Audit Committee Members

• Members of the governing body or hold the elected position of City Treasurer

• Possess basic understanding of governmental financial reporting and auditing

• Educated regarding role of the audit committee and their personal responsibility as members, including their duty to exercise an appropriate degree of professional skepticism

Audit Committee Sources

• References Report and Recommendations of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees, Overview and Recommendations

• SEC Regulation 33-8220, Background and Overview of the New Rule and Amendments

• Sarbanes Oxley Act, Section 301 and Section 407.SEC Regulation 330-8220, Background and Overview

• Audit RFP Diskette, GFOA • Belmont City Code, Section 2-158 (3)