What makes an audit committee effective in a public entity

For parastatals, state-owned enterprises and local authorities, the audit committee is the board’s main tool for overseeing financial reporting, risk and controls. Its effectiveness has a direct influence on audit outcomes, and on how well the entity is run.

What an audit committee is there to do

• Oversee the integrity of financial reporting.
• Review the adequacy of internal controls and risk management.
• Oversee internal audit and monitor the external audit.
• Follow up on audit findings until they are closed.
• Monitor compliance with laws, regulations and policies.

Traits of effective committees

1. Independent, competent members. At least one member should have real financial expertise, and members should not have operational or personal interests in matters the committee reviews.
2. A clear charter. Written terms of reference, approved by the board, defining responsibilities, meeting frequency and reporting lines.
3. Regular meetings with a real agenda. Committees meeting quarterly at minimum, with papers circulated in advance so members arrive prepared.
4. Direct access to auditors. Internal and external auditors should be able to speak to the committee without management present.
5. A tracker for findings. Every audit finding should have an owner and a due date, and the committee should review progress at each meeting.
6. Willingness to challenge. Members ask questions about unusual transactions, delayed reports and repeat findings, and minute the answers.

Signs of a weak committee

• Meetings postponed or shortened repeatedly.
• Papers tabled at the meeting itself.
• The same audit findings appearing year after year.
• Management dominating discussions.
• Minutes that record attendance but not debate.

What the board should do

• Assess the committee’s composition and skills annually.
• Ensure it is resourced and has access to information.
• Read its reports and act on its recommendations.