Audit committee can minimize risk of fraud

After auditors discovered that more than $11 million had been stolen from a New York school district in 2005, a state law was passed mandating district audit committees and requiring board members to receive training in financial oversight.

Meet-the-Experts presenter Charles Trainor, president of Management Audits Consultants Inc., and a former member of the Briarcliff Manor, N.Y., school district, said dramatic reductions in questionable financial practices have been seen since the law took effect.

One of an audit committee’s most important functions is to monitor how administrators implementation board recommendations, Trainor said Saturday. In addition to informing the board with regular progress reports, the committee also should review financial reports, ensure the district complies with regulatory requirements, address conflict-of-interest issues, and set high ethical standards.

“A knowledgeable audit committee can spot dangerous trends by comparing key estimates versus historical data,” said Trainor, who writes a monthly “Money” column for American School Board Journal.

By monitoring expenditures, financial reports, and cash flow, the committee can assist in projecting reserves and investment opportunities. A collaborative working relationship with the administration is crucial, he adds.

“Mutual respect will facilitate oversight of financial statement integrity and evaluation of the administration’s risk management process,” Trainor said, noting is also essential for audit committee members to recognize their role as overseers and make sure administrators own the internal control process.

It is especially critical that effective internal controls be employed in these difficult economic times, Trainor says. “By assembling the proper skill sets in an audit committee, all stakeholders will recognize that your district is making a serious effort to protect assets.”