The primary function of the Audit Committee (the “Committee”) is to assist the Board of Trustees in fulfilling its oversight responsibilities relating to:
- the integrity of the university's financial statements,
- the systems of internal control,
- the performance of the university's independent auditors and internal audit function, the independent auditors' qualifications and independence,
- and the university's compliance with legal and regulatory requirements.
In so doing, it is the responsibility of the Committee to maintain free and open communication among the Committee members, independent auditors, the internal auditors, and management of the university. The Committee shall take all appropriate actions to set the overall university tone for quality financial reporting, sound business risk practices, and ethical behavior. In recognition of the university in striving to be the most efficiently run research university in the world, the Committee will guide the university in achieving the best financial operations as compared to peer institutions or organizations of similar size.
The Committee shall consist of members who are independent of management and the university in fact and appearance. Members of the Committee shall be considered independent as long as they do not accept any consulting, advisory, or other compensatory fee from the university and are not affiliated persons of the university, its subsidiaries, or management.
A majority of Committee members shall be “financially literate,” and at least one member shall be a “financial expert.” Financial literacy is defined as being able to read and understand fundamental financial statements. Financial expert means a person who has: an understanding of generally accepted accounting principles and financial statements, experience applying such principles, experience preparing, auditing, analyzing or evaluating financial statements, experience with internal controls, and an understanding of audit committee functions.
Duties and Responsibilities
While the Committee has the responsibilities and powers set forth in this Charter, it is not the Committee's duty to plan or conduct audits or to determine that the university's financial statements are complete, accurate, and in accordance with generally accepted accounting principles. Management is responsible for the preparation, presentation, and integrity of the university's financial statements and for the appropriateness of the accounting principles and reporting policies used by the university. The independent auditors are responsible for auditing the university's financial statements.
The following shall be the principal duties and responsibilities of the Committee. These are set forth as a guide with the understanding that the Committee may modify or supplement them as appropriate:
- Be directly responsible for the appointment, compensation, and retention of the university's independent auditor. Evaluate annually the qualifications and performance of the independent auditors. Ensure that the independent auditor assigns the appropriate industry experts to the audit engagement. The independent auditor shall have direct access to the Committee.
- Review with management, the independent auditors, and the internal auditors their judgments about: the quality -- not just the acceptability -- of the university's accounting principles, the consistency in the application of accounting policies, the reasonableness of significant judgments, the degree of aggressiveness or conservatism in applying the accounting principles, and the clarity and completeness of the financial statements and related disclosures.
- Confirm with management and the independent auditor that the annual financial statements disclose all material off-balance sheet transactions, arrangements, obligations, and other relationships of the university with unconsolidated entities or other persons that may have a material current or future effect on: financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses.
- Review and approve the annual financial statements of the university and the audit report on Federal Awards received by the university as required by OMB Circular A-133.
- On an annual basis, assess the independence of the independent auditor by reviewing a letter issued by the independent auditor under Independence Standards Board Standard No. 1 and discuss any relationships disclosed that may impact auditor objectivity and independence.
- On an annual basis, obtain a report from the independent auditor regarding required communications under Statement of Auditing Standards No. 61, as amended. Review with the independent auditor:
- Any significant difficulties encountered during the course of the audit, any restrictions on the scope of work or access to required information, and any significant disagreements among management and the independent auditor in connection with the preparation of the financial statements.
- Any formal communications between the audit team and the auditor's national office regarding auditing or accounting issues.
- Any letters issued addressing internal controls, business process improvements, or other recommendations, and the schedule of unadjusted differences (if any) prepared by the auditor.
- Important accounting policies and practices used by the university, all alternative treatments of financial information within generally accepted accounting principles, the ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor.
- Developments and emerging issues in the higher education industry including ways to improve operations or business practices.
- The Committee or its Chair shall pre-approve all audit and non-audit services provided by the independent auditors. The independent auditor is prohibited from performing the following non-audit services:
- Financial information systems design, implementation, or operation
- Appraisal or valuation services, fairness opinions, or contribution-in-kind reports
- Actuarial Services
- Internal audit outsourcing services
- Management functions or human resources
- Broker or dealer, investment advisor, or investment banking services
- Legal services and expert services unrelated to the audit
- Preparing the indirect cost proposal or cost allocation plan
- Other services that would violate the U.S. General Accounting Office Independence Standard.
- Services approved by the Chair should be reported to the entire Committee at its next scheduled meeting.
- The Committee shall ensure proper rotation of the lead and concurring audit partners on the university's engagement. (As recommended by the Sarbanes-Oxley Act, the SEC now requires public companies to rotate the lead and concurring audit partners every 5 years.)
- Review new and significant accounting pronouncements, and understand their impact on the university's financial statements.
- Review compliance with governmental laws and regulations.
- Obtain and review the annual internal control certification letter signed by appropriate management personnel.
- Review and appraise the organizational structure, adequacy of resources, qualifications, independence, and activities of the university's internal audit department.
- Review and approve the annual internal audit plan.
- Review and concur with the appointment, reassignment, or termination of the Director of Internal Audit.
- Periodically review the university's Internal Audit charter for necessary changes.
- Receive a summary of findings from completed internal audits and the status of implementing related recommendations.
- Receive a progress report on the internal audit plan with explanations for any deviations from the original plan.
- Approve procedures for the receipt, retention, and treatment of complaints received by the university regarding accounting, internal accounting controls or auditing matters -- including procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
- Review exceptions on university policies and procedures regarding executive expense accounts and procurement cards and consider the results of any work in these areas by the internal or independent auditor.
- Inquire of management, the internal auditor, and the independent auditor about significant financial, operational, compliance, and reputational risks facing the university. These risks are defined as follows:
- Financial – Loss of assets or resources. Also includes the reliability of the university's internal and external reporting.
- Operational – Effectiveness and efficiency of the university's operations and use of resources.
- Compliance – Compliance with laws and regulations as well as compliance with university policies and procedures.
- Reputational – Risks that affect the university's reputation or brand. Public relation matters.
- Assess the steps management has taken to mitigate such risks or exposures.
- Obtain reports concerning any financial fraud resulting in losses in excess of $10,000 or involving university Officers, Deans, or Vice Presidents.
- Provide oversight regarding the university's conflict of interest and code of conduct policies and related procedures.
- Review and assess the adequacy of this Charter on a three-year basis or more frequently if deemed necessary.
Resources and Authority
The Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities, and personnel of the university and with the authority to engage independent counsel and other advisors if deemed necessary to carry out its duties at university expense.
A majority of the members of the Committee will constitute a quorum for the transaction of business. The Committee shall maintain written minutes of its meetings, which will be filed with the Secretary of the Corporation. Reports of all meetings will be made to the Board of Trustees.
The Committee may request any trustee, officer, employee, outside counsel, or independent auditor to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee.
As part of its responsibility to foster open communication, the Committee shall provide sufficient opportunity for the internal and independent auditors to meet privately with the Committee. At least annually, the Committee shall meet separately with the independent auditor, the internal auditor and management.