Demystifying the Finance Audit Committee DEMYSTIFYING THE FINANCE - - PowerPoint PPT Presentation

DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE

“Demystifying the Finance Audit Committee”

DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE

1. How to set-up the Finance and Audit Committee 2. Terms of Reference 3. Recruitment 4. Fiduciary obligations 5. Understanding the scope of role & responsibilities

Agenda

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• 1. How to set-up the Finance and

Audit Committee

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Provides forward- thinking oversight of your Nation’s investments Supports Council in making informed decisions Reinforces Council’s financial responsibility, accountability, transparency

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Benefits

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• 2. Terms of Reference

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Structure - Overview

• Report to Council
• Chair and Vice-Chair are appointed by Council (one must be Councillor)

Reporting

• Minimum 3 members (at least 1 Councillor)
• For 4 or more members (at least 2 Councillors)

Membership

• Majority of members must have financial competency
• All members are independent

Qualification Criteria

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Structure – Financial Competency

• Financial literacy or related financial management expertise
• Qualification requirements interpreted by Council
• The ability to read and understand a set of financial statements;
• An understanding of internal controls and procedures for financial

reporting and risk management processes;

• An understanding of the First Nation’s strategic objectives;
• The ability to assess the general application of accounting policies and

principles Sample Financial Competency criteria

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Structure – Independence

• No direct or indirect relationship with the first nation government

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• Council required to make policies or procedures for independence criteria

▪ Establishing independence eligibility criteria in compliance with FMB Standards

⎼ Senior Manager, Finance Manager, Finance department ineligible ⎼ Councillors and Other employees may be eligible

▪ Requiring confirmation from candidate about independence ▪ Requiring annual conflict of interest disclosure statement

• No direct or indirect relationship with the first nation government

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Case Study # 1 – Golden Opportunity

Amazing First Nation is considering investing in a for-profit gold mining camp business and one of the Nation’s Councillors sits on the Board of Directors of this business as an independent Director (not in their capacity as Councillor or Chair of the Finance and Audit Committee). To help Council consider this opportunity, the mining camp business

• ffered a fully-paid extended weekend to the Chief and his spouse to tour one of their

existing mining camp operations in Costa Rica. The weekend would include staying at a resort in Costa Rica.

At your table, discuss for 10 minutes the questions on the following page. Have one person write down your table’s answers and have one person speak to these to the larger group after 10 minutes.

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Case Study # 1 – Golden Opportunity

Question 1: Describe how you think the Finance and Audit Committee’s obligations would apply in this situation:

• Annual Budget
• Multi-Year Financial Plan
• Conduct Expectations

Question 2: List and describe how you think any other obligations of the Finance and Audit Committee would apply in this situation.

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Case Study # 1 – Golden Opportunity

Question 1 Answer Key:

• Annual Budget: The affect to the annual budget would only apply if any work/feasibility studies

related to the mining camp investment opportunity were to begin in the current fiscal year. An amendment to the budget would likely have to happen if this was not previously budgeted for. Future annual budgets would need to reflect any planned activities related to this investment

• pportunity.
• Multi-Year Financial Plan: If this investment opportunity is to be analyzed further, the FAC

would require that it be considered within the multi-year financial plan. This multi-year financial plan:

a. is consistent with and supports the objectives of the First Nation’s strategic plan, b. is based on the projections of revenues, expenditures and transfers between accounts, c. includes the life-cycle management program for the First Nation’s tangible capital assets, and d. includes the economic and social impacts of the First Nation’s planned capital projects and projects undertaken by the First Nation with other governments.

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Case Study # 1 – Golden Opportunity

Question 1 Answer Key (cont’d)

• Conduct Expectations: The Finance and Audit Committee requires any member of the

Committee, when exercising a power, duty or responsibility relating to the financial administration of the First Nation including:

a. to act honestly, in good faith and in the best interests of the First Nation, b. to exercise the care, diligence and skill that a reasonably prudent individual would exercise in comparable circumstances, c. to act in accordance any applicable First Nation law, the Act, its regulations and any applicable standards made under the Act, and d. to avoid conflicts of interests and to comply with provisions policies and procedures established by Council for, the avoidance and mitigation of those conflicts.

Who has a conflict of interest (personal gain at the expense of others) in this example? – Chief (if he goes

• n the paid vacation) and the Councillor who sits on the Board of Directors of the for-profit mining camp

business.

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Case Study # 1 – Golden Opportunity

Question 2 Answer Key: List and describe how you think any other provisions of the FAC would apply in this situation.

• Annual report (any activities related to this investment (feasibility study, business

plan) would need to be reported on in the annual report);

• Financial reporting (monthly, quarterly, annual audited): any expenses spent by the

Nation in relation to this investment opportunity would need to be reflected in financial reports.

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• 3. Recruitment

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A job description

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• Ask your Director of Education (or equivalent) if they have a list of

members who may have the qualifications you require

• Ask during your annual general meeting
• Social media

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Other ways to recruit

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• 4. Fiduciary obligations

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• Independence is decided by Council
• May not be considered independent if

a financial relationship with the First Nation’s government may change a person’s thoughts or actions

• If not considered to be independent,

then the person cannot become a member

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A committee member…

Fiduciary obligations

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Standard of Care; must place the best interests of the First Nation above their own interests FAC mostly concerned with

• 1. Financial Statements
• 2. Accounting Processes
• 3. Internal Systems of Control

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Duties of a committee member…

Fiduciary obligations

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• 5. Understanding the Scope of

Roles and Responsibilities

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Case Study # 2 – Who Hired This Auditor Anyways?

It is that time of year again and Amazing First Nation has begun preparations for the annual audit of its operations. Amazing First Nation went through elections recently and an entirely new Council was elected. There is also a new band manager and the finance manager is on maternity leave. Her replacement started 2 weeks ago after the position was not filled for 3 months. Amazing First Nation met with their auditor (from last year) and asked ‘how things were going with the audit’. The auditor replied that trial balances had been forwarded to them by Amazing’s new finance manager for all operations except the health centre. The auditor advised that ‘another audit firm’ does the audit of the health centre and that Amazing’s audit would be late if they did not receive the necessary information from this ‘other audit firm’ within the next week. Neither Council nor the band manager nor the finance manager at Amazing First Nation know about the health centre’s ‘other auditor’ yet the health operations are entirely part

• f the Nation and Council’s responsibility. Health is consolidated into Amazing’s audited

financial statements.

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Case Study # 2 – Who Hired This Auditor Anyways?

At your table, discuss for 10 minutes the questions below. Have one person write down your table’s answers and have one person speak to these to the larger group after 10 minutes. Question 1: How would the Finance and Audit Committee respond to what the auditor has said?

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Case Study # 2 – Who Hired This Auditor Anyways?

Question 1 Answer Key:

Appointment of Auditor and Auditor’s Authority - Make recommendations to Council about the selection, work, and performance of the auditor Council Responsibilities and FAC Responsibilities – to be discussed during the rest of the presentation

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Roles and Responsibilities – Finance & Audit Committee

Audit and Finance Oversight Financial Responsibilities

• Financial

Planning

• Financial

Performance

• Financial

Statements

Audit Responsibilities

• External Auditor
• Audited

Financials

• Risk

Management

• Internal Controls

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Finance and Audit Committee Calendar

Finance and Audit Committee Calendar

BUDGET YE Q1 Q2 Q3 FEB JUN JUL OCT JAN

Financial Planning

• 1. Review Multi-Year Financial Plan

X

• 2. Review Draft Annual Budget

X Financial Reporting

• 3. Review Quarterly Financial Statements

X X X

• 4. Review Annual Audited Financial Statements

X Audit

• 5. Review Auditor’s Engagement and Fees

X

• 6. Review External Audit Plan

X

• 7. Review FAC Terms of Reference

X Risk Management

• 8. Review Risk Assessment & Risk Management Plan

X Capital Projects

• 9. Review Draft Annual Capital Project Budget

X

• 10. Review Quarterly Capital Project Update

X X X Other

• 11. Annual Report

X

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Roles and Responsibilities – Finance & Audit Committee

Annual Financial Statements and Special Purpose Reports Financial Performance – Quarterly and annual Financial Planning – Budget, 5-yr financial plan

Monitor Review Recommend

Financial

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Roles and Responsibilities – Finance & Audit Committee

Reporting Risks and Mitigating Controls Audited Annual Financial Statements and Other Reports Planning, Conduct and Results of Audit Activities External Audit Selection, Engagement, Performance

Monitor Review Recommend

Audit

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Roles and Responsibilities – Council

Community Leaders Approvers Oversight Responsibility

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Approve the audited financial statements and any special reports within 120 days after the fiscal year-end Ensures the First Nation’s auditor

• Provides an opinion on the annual financial statements
• Provides the terms of the engagement letter
• Follows the generally accepted auditing standards

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Roles and Responsibilities - Council

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Roles and Responsibilities – Senior Manager, Senior Finance Officer

Internal Control Development and Compliance Financial Strategy, Plan and Report Development Financial Operations Risk Management Planning

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Roles and Responsibilities – External Auditor

Performance Audit Compliance Audit Financial Statement Audit

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Keys to Success – Finance and Audit Committee

Improve Community Well-Being

Assistance Capable Chair Technical Expertise Well-Defined Mandate Communication

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Contact First Nations Financial Management Board

Phone: 1-877-925-6665 Director of Capacity Development and Intervention Suzanne Trottier, CFA, MBA suzanne_trottier@fnfmb.com

Senior Manager of Capacity Development, SK, MB and NWT Region Fauna Kingdon, CPA, CA, CAFM, MPAcc, BComm (Hon) ● fauna_kingdon@fnfmb.com Managers of Capacity Development: Alyssa Reid, BA, CAFM ● alyssa_reid@fnfmb.com Joe Bevan ● joe_bevan@fnfmb.com Laura Bouchard, CPA, CGA ● laura_bouchard@fnfmb.com Laurie Mercer, BComm ● laurie_mercer@fnfmb.com Melanie Assiniwe, CPA, CA ● melanie_assiniwe@fnfmb.com Nathalie Huntley, MSc, BSc, ENAP ● nathalie_huntley@fnfmb.com Priscille Buors, CPA, CGA ● priscille_buors@fnfmb.com Sue-Lin Tarnowski, CPA, CMA ● suelin_tarnowski@fnfmb.com Tara White, MBA, CPA, CMA, CAFM, CMP ● tara_white@fnfmb.com