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Audit Committee Policy
Municipalities and villages in Nova Scotia have a significant degree of public accountability. All
municipalities and villages must establish an audit committee. The requirements and objectives of the audit
committee are outlined in Section 44 of the Municipal Government Act and confirms that the duties of the audit
committee can be performed by a separate committee, as outlined in this policy, the Audit Committee Policy.
1.
Definition
An audit committee acts as an advisory board carrying out critical review functions on
behalf of council/commission. The primary function of the audit committee is to assist the
Municipality of the County of Inverness in fulfilling their oversight responsibilities related
to quality and integrity of financial reporting along with ensuring the appropriate systems
and controls for the proper recording of transaction and protection of assets are in place.
2.
Purpose
The objectives of an audit committee are to:
i. Help the Municipality of the County of Inverness Council meet its fundamental
responsibilities of protecting the municipal assets and managing operations as
efficiently as possible;
ii. Provide better communication between the auditor and Council, and promote better
understanding of the audit process;
iii. Enhance the external auditor's independent position;
iv. Increase the credibility and objectivity of the Municipality of the County of Inverness'
financial report;
v. Strengthen the role of Council and committee members.
3.
Audit Committee Composition
i. The audit committee will be composed of five members - the Warden, two elected
Council members and two members at large.
ii. The two members at large cannot be related to a member of Council or to an
employee of the Municipality of the County of Inverness.
iii. Where an audit committee does not include the person referred to in subsection (ii), the
audit committee shall continue to meet and perform its duties and may exercise its
powers; and the municipality shall advertise to recruit a person who is not a member of
Council or an employee of the Municipality of the County of Inverness at least once
every six months until the requirement is met.
iv. The Warden, Councillors and members at large will serve two-year terms to maintain the
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knowledge base. The two members at large will rotate off in opposite years to maintain
continuity. In the first year, one of the members at large will sit for a one-year term.
Council will select a member of Council as Chair at the December meeting for the next
year.
v. Audit committee members should be financially literate.
vi. Each audit committee member must complete training as prescribed by the Municipality
of the County of Inverness.
vii. The Chief Administrative Officer and Director of Finance will provide staff support to the
Audit Committee and attend all scheduled meetings.
4.
Meeting Requirements
i. An audit committee should convene whenever circumstances demand such a meeting;
however, the committee must meet at least twice in each fiscal year.
ii. It is recommended the audit committee meet at least four times, and the meeting
should coincide with the stages of the audit. The following topics are recommended to be
included on the audit committee's agendas:
a. role and responsibilities of the auditor;
b. review of the roles and responsibility of the audit committee;
c. appointment of municipal auditor;
d. quarterly financial information;
e. audited Financial Statements and auditor's work;
f. management or Internal Control letter and management's response;
g. adequacy and effectiveness of internal controls;
h. financial condition indicators;
i. financial risk management.
iii. There is a requirement that audit committee meeting dates be specifically established
and agendas developed to address its terms of reference and responsibilities.
iv. There will on occasion, be a need for the auditor to meet with the audit committee,
without any appointed officials present. This would be accommodated through a
request by either the committee or the auditor to one another.
5.
Audit Committee Responsibilities and Functions
The functions of the audit committee can be categorized as follows:
i.
Financial Reporting Function - Responsibilities Related to the Financial Reporting
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The Committee shall:
a.
review the audited annual financial statements in depth with management
and the external auditor; if satisfied that they present fairly the financial
position and results of operations, recommend their acceptance to Council;
b.
review with management any changes in accounting principles and practices
followed by Municipalities;
c.
review any significant variance in comparison to prior year and/or budget;
d.
review and discuss the financial condition indicators.
ii.
External Audit Function - Responsibilities Related to the Work of the Auditor
The Committee shall:
a.
discuss the extent, timing and completion of the audit including the level of
materiality to be used;
b.
review estimated and final audit fee;
c.
discuss whether the terms of the letter of engagement were met;
d.
recommend to Council the change of the municipal auditor if management
questions the competence of the incumbent auditor and the committee
confirms the view; the recommendation to appoint a new auditor would follow
an adequate inquiry into the auditor's competence and reputation;
e.
review the problems and restrictions encountered by the auditor and degree of
cooperation received;
f.
promote cooperation between the management and the auditor.
iii.
Accounting System and Internal Controls Function - Responsibilities Related to Internal
Controls.
The Committee shall:
a.
obtain and review the management and internal control letter addressed to
Council;
b.
discuss with the auditor the annual evaluation of the internal control systems
related to the financial reporting and the recommendations for improvements
of accounting procedures and internal controls related to the financial
reporting, together with management's response;
c.
discuss management's response to the recommendations and adequacy of
management's action plan;
d.
obtain reasonable assurance that the Municipality of the County of Inverness
has implemented appropriate systems of internal controls:
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i. Over the financial reporting and that these systems are operating
effectively;
ii. Obtain assurance the Municipality of the County of Inverness is in
compliance with its policies and procedures and that these systems are
operating effectively; and
iii. Identify, monitor, mitigate and report significant financial or operational risk
exposures and that these systems are operating effectively; and
e.
receive and review any internal reports relating to accounting procedures and
internal controls.
iv.
Risk Management Function - Responsibilities Related to Risk Management
The Committee shall:
a.
understand the risks of the Municipality of the County of Inverness;
b.
review the Municipality of the County of Inverness risk management controls
and policies;
c.
obtain reasonable assurance that management's systems to eliminate or
manage the risks are effective;
d.
receive reports on the management of financial risks.
v.
Alleged Wrong-Doing Function - Responsibilities Related to Questionable Activities
The Committee shall:
a.
enquire fully into any activities or transactions that may be illegal,
questionable or unethical, and into the Municipality's control procedures to
ensure that such activities are being guarded against;
b.
ensure management has implemented a policy and/or process to review and
respond to complaints or allegations of wrong-doing or questionable acts by
elected officials, or municipal employees;
c.
review and advise Council members with respect to complaints or allegations
of wrong-doing.
vi.
Statutory and Regulatory Compliance Function and Other Responsibilities
The Committee shall:
a.
review the Municipality's compliance with statutory and regulatory obligations
within the Committee's area of responsibility (for example reporting
compliance);
b.
review the overall reasonableness of expenses of the Chief Administrative
Officer and of council members. Specifically; review the summary of
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remuneration
and
expenses
schedule
for
reportable
individuals
for
reasonableness;
c.
review the annual summary hospitality expense note;
d.
review adequacy of staffing in relation to both number and competence for
accounting and financial responsibilities.
6.
Reporting Requirement
The audit committee must maintain minutes of its meetings and submit written reports to
council or council as a committee of the whole.