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FAQ – Audit Committee Regulation
ESTABLISHMENT OF AUDIT COMMITTEE
1 Question Can the Ministry tell us what its intention for the audit
committee is? Is it oversight on the board of trustees
fulfilling its stewardship responsibilities, or is it an advisory
body to the board of trustees, or is it a parallel and equal
body to the board of trustees with a separate mandate from
the Ministry?
Answer The audit committee is a committee of the Board and will report to
the board of trustees. The audit committee’s duties include
reviewing; the financial reporting process, internal controls,
internal auditing, external auditing, compliance matters, risk
management, and any other Board proposed activity. The audit
committee’s role is not one of oversight but rather to assist the
board of trustees to fulfill their stewardship responsibilities. All
final decisions rest with the board of trustees.
COMPOSITION OF AUDIT COMMITTEE
2 Question There appears to be a specific formula to calculate the
number of participants who shall sit on the audit committee.
Do these numbers represent a maximum or minimum number
of members?
Answer The number of members represents neither a minimum nor a
maximum number, but rather an exact number.
3 Question Can the Chair of our Board be an ex-officio member of the
Audit Committee?
Answer No, the Chair of the Board cannot be an ex-officio member of the
audit committee. If the school board would like the Chair of the
Board to be a member of the audit committee, he or she would
have to be one of the selected trustee members as noted in the
regulation.
4 Question It will be difficult for boards, particularly small rural boards, to
attract enough qualified non-trustee members to participate
in the audit committee, particularly with no compensation for
the work? How will the Ministry address this concern?
Answer The Ministry has accounted for this concern through a number of
ways:
1) Lengthy recruitment window. School boards will have a
significant amount of time (September 2010 to January 2011) to
recruit external members.
2) Minimal time commitment. The time commitments for audit
committee members will be minimal with only 3 scheduled
meetings per year.
3) Convenience. Audit committees will have the option of meeting
via teleconference so as to avoid long trips and / or disruptions to
personal time.
4) Assistance. The Ministry will be a resource for school boards to
use if they are having difficulties recruiting by having direct
connections with professional accounting bodies that encourage
their staff to give back to their communities.
5) Advertisement. The Ministry is preparing a pamphlet that can
be distributed to all school councils talking about why someone
should consider being a member of a school board audit
committee.
6) Reimbursement of out of pocket expenses. School boards have
policies to reimburse members for travel to attend meetings and
this would also apply to the audit committee.
5 Question In the event that the Minister is required to appoint an
external audit committee member to an audit committee, what
considerations will be evaluated prior to the appointment?
Answer Every effort will be taken to ensure that the appointed candidates
meet the following three requirements:
1. Knowledge of the territory that the school board services;
2. Resides in the territory that the school board services; and,
3. Speaks the language of the particular school board.
6 Question If the Minister is required to appoint an external audit
committee member, is this appointment until the board
selects a replacement, or is the Minister’s appointee to serve
the remaining term of the person replaced?
Answer The Minister’s appointment would be temporary until the school
board can find a suitable replacement.
ELIGIBILITY FOR APPOINTMENT OF PERSONS WHO ARE NOT BOARD MEMBERS
7 Question The eligibility criteria for potential external candidates is
limited to accounting, financial management and legal
experience. Could the criteria be expanded to allow the
participation of certain experts (example, engineers) given
the types of internal audits that will be performed?
Answer No. The external members who participate in audit committees do
not need to have expertise in the areas that internal audit will be
auditing. It is up to the internal audit staff to have the necessary
skills to audit the school board audit universe processes. Internal
audit staff then makes recommendations to the audit committee
based on their findings.
The type of experience listed in the regulation focuses on the
business side of a district school board. Having specialized skills
in the areas of financial reporting, corporate governance, and
internal control helps to ensure more effective management
oversight, fosters financial statement accuracy and transparency,
and places an appropriate focus on business risks and internal
controls.
SELECTION COMMITTEE
8 Question How does the Ministry ensure that the selection process for
external candidates is impartial and transparent?
Answer The regulation stipulates that each school board shall have a
selection committee for the purpose of identifying potential
candidates to participate in the audit committee. These
candidates will be interviewed by the selection committee. The
selection committee shall be made up of three individuals:
1. Chair of the Board or trustee designated by the Chair
2. Director of Education
3. Senior Business Official
Recommendations made by the selection committee shall be
presented to the board of trustees for final approval.
CHAIR OF THE AUDIT COMMITTEE
9 Question Can non board members /external members serve as
committee chair?
Answer No the regulation requires that the chair of the committee be a
board member. As the audit committee is a committee of the
board, it makes the communication with the board of trustees and
reporting to the board of trustees more effective.
TERM OF APPOINTMENT
10 Question If the intent of having different appointment terms for trustees
versus external members in the regulation is so that
appointment dates are staggered for the various audit
committee members, then would it not be wise to have a
specific clause in the regulation that says as much?
Answer Although that is the intention of differing appointment terms, a
regulation sets the terms of the rule but does not provide
interpretation of the rule.
11 Question Can appointments to the audit committee be done annually
rather than every four years for a trustee and three years for
external members? This will give an opportunity for trustee
members to rotate on and off the committee and share the
experience.
Answer It is strongly recommended that trustees participate as active
members of the audit committee for more than one year.
Continuity of members is a key aspect in fully understanding the
multi-faceted role this committee plays. Having the background
knowledge of issues that cross more than one fiscal period (multi-
year audits, revised risk assessments etc…) will increase the
effectiveness of the audit committee.
VACANCIES
12 Question Will the Ministry consider changing the regulation to include
the following two statements pertaining to vacancies?
Vacancies shall be filled by appointment by the board upon
recommendation from the selection committee. Vacancies
are created by the resignation of a member of the audit
committee.
Answer No, these statements are implied in the regulation.
DUTIES OF AN AUDIT COMMITTEE - GENERAL
13 Question Why doesn’t the regulation make specific reference to the
regional internal auditors? Aren’t they the only ones bound
by this regulation?
Answer The regulation doesn’t make specific reference to the regional
internal audit function as the regional model is simply a
mechanism to perform the internal audits in the most effective and
efficient manner possible. All school board internal auditors are
required to respect the requirements outlined in the audit
committee regulation.
14 Question Are the audit committee member duties that are specified in
the regulation all inclusive or will there be additional duties?
Answer For the most part all of the duties are outlined in the regulation;
however, other duties may be as assigned to account for any
other duties that may have been overlooked.
15 Question Will the regulation include an introductory sentence that
makes it clear that the audit committees’ oversight duties are
in respect to the Boards’ responsibilities regarding finance
and business related matters?
Answer No it will not. The role of audit committees continues to evolve as
a result of the passage of the Sarbanes-Oxley Act of 2002. Audit
committees were typically charged with oversight of financial
reporting and disclosure only. Many audit committees, as those in
the education sector now have oversight in the additional areas of
regulatory compliance and risk management activities.
DUTIES OF AN AUDIT COMMITTEE – FINANCIAL REPORTING PROCESS
16 Question Clarity is needed on the statement ‘Review elements that
could have an impact on the board’s financial statements’.
There are few school activities that don’t have some impact
on the financial statements. Is it the Ministry’s intention that
the year to date financial reports and year end forecast are
presented to the audit committee as well as all matters that
may impact on enrolment?
Answer The wording in this section of the regulation was amended to state
the following:
An audit committee of a board has the following duties related to
the financial reporting process: to review the effect of the following
matters on the board’s financial statements:
a) relevant accounting and reporting practices and issues;
b) complex or unusual financial and commercial transactions of
the board;
c) material judgments and accounting estimates of the board;
and
d) any departures from current accounting principles published
by the Canadian Institute of Chartered Accountants.
17 Question The regulation states that the audit committee should
recommend that the board approve the annual audited
financial statements. May financial statements be simply
received or must they be approved by the board?
Answer School boards are obliged to follow the regulation and the
regulation states that the audit committee recommends that the
board approves the annual audited financial statements.
DUTIES OF AN AUDIT COMMITTEE – INTERNAL CONTROLS
18 Question What does review the overall effectiveness of the board's
internal controls mean?
Answer Reviewing the overall effectiveness of the board's internal controls
includes evaluating the efficiency and effectiveness of operations,
the safeguarding of assets, examining the integrity of financial
transactions and reviewing steps taken by management to
minimize significant exposures.
DUTIES OF AN AUDIT COMMITTEE – INTERNAL AUDITOR
19 Question How will the Audit Committee “ensure” that there are no
unjustified restrictions or limitations on the scope of the
internal audits?
Answer The internal audit team, usually through the regional internal audit
manager, will report to the audit committee whether or not there
were some restrictions or limitations placed on the scope of the
internal audit plan.
20 Question One of the listed audit committee member duties pertaining
to internal audit is to review the effectiveness of the internal
auditor, including the International Standards for the
Professional Practice of Internal Auditing. Audit committee
members may not be qualified to complete this task. Wouldn’t
they need to be very specialized to assess internal auditor
compliance with internal auditing standards?
Answer The audit committee should evaluate internal audit based on their
own experiences and ask management and external audit to
provide their own assessments. In addition to these assessments,
the regional internal audit manager will be requested to assess the
department’s performance. The audit committee will need to
ensure that they have appropriately qualified resources to
consider the implications of the assessments.
21 Question Will there be two internal audit processes underway at all
boards? One will be conducted by the Regional Internal
Audit Team (RIAT) and the second would be by each board
undertaking additional internal audit work for its own board,
at its discretion?
Answer The intention is to have a seamless internal audit process at the
school boards. The RIAT will take the lead in performing risk
assessments and conducting internal audits for all school boards
and report its findings to the audit committees. However, if boards
do have existing internal audit staff, they can assist in the
performance of internal audits or conduct additional internal audits
that the board deems necessary to provide greater coverage to
address risks at the board.
DUTIES OF AN AUDIT COMMITTEE – EXTERNAL AUDITOR
22 Question Please clarify the meaning of “to recommend to the board
and oversee a policy designating services that the external
audit may perform for the board”? Does this policy require
board of trustee approval?
Answer The primary role of external auditors is to express an opinion on
whether a school board’s financial statements are free of material
misstatements. In order to express this opinion, users of the
financial statements rely on the external auditor to be unbiased
and independent. External auditors can perform other services
such as review and compilation engagements, other audit
services for regulatory reports, and consulting services to name a
few. Therefore, the audit committee needs to ensure that the
other services provided by the external auditor’s do not create a
material relationship with the school board which, in the view of
the Board, could reasonably be expected to interfere with the
independence of the external auditor.
Yes this policy should be approved by the Board.
DUTIES OF AN AUDIT COMMITTEE – COMPLIANCE
23 Question The regulation states the following: "Review the process for
communicating the codes of conduct and the process for
monitoring these codes of conduct", which code of conduct
are you referring to, the one in Bill 177 or the one that staff
and/or trustees are required to follow?
Answer The Ministry is referring to all existing codes of conduct at the
district school board. Audit committee members have oversight
responsibilities to ensure that:
- A code of conduct has been developed, reviewed and
updated as needed;
- All employees receive the code of conduct, understand it,
and receive training; and
- Management exhibits ethical behavior and reported
violations receive action.
24 Question The term “to obtain confirmation that all statutory filings have
been met” is too broad. How can this be done?
Answer Meeting statutory requirements is an obligation of any
organization operating within the Province of Ontario. Therefore,
the district school board should be aware of all the statutory
requirements and be in a position to report to the audit committee
that it has discharged its responsibility of having met those
requirements.
DUTIES OF AN AUDIT COMMITTEE – RISK MANAGEMENT
25 Question The term risk management seems broad, are you specifically
referring to environmental risks, insurance risks, and
financial risks?
Answer When the term risk management is mentioned in the regulation, it
refers to enterprise risk management (ERM). ERM includes the
key risk categories of operations risk, finance risk, human capital
risks, information technology risks, legal risks and reputation risks.
POWERS OF AN AUDIT COMMITTEE
26 Question How will the Ministry address the concern that the audit
committee has access, at all reasonable hours, to all records
of the Board? Is there a potential privacy issue if the
committee has unlimited access to human resource /
personnel information?
Answer Although not specifically noted in the regulation, the audit
committee will only have access to records required to discharge
its duties and responsibilities. Following the sector consultation
process this power has been reworded to “have access to all
records of the board that were examined by the internal or
external auditor”.
27 Question How will the Ministry ensure that the audit committee knows
its role and responsibilities and uses its powers effectively?
Answer The Ministry of Education is providing training to all audit
committee members on their role, responsibilities and powers.
During the training session the members should gain a clear
understanding of how and when to use the powers listed in the
regulation.
28 Question When it comes to the costs, will the audit committee have the
final say on retaining counsel, accountants or other
professionals to advise the committee or will the board have
some say?
Answer The audit committee regulation has been clarified indicating that
this power is subject to the prior approval of the chair of the board.
The audit committee does not have any final decision making
authority, it makes recommendations to the board of trustees
which in turn will make all the final decisions.
MEETINGS
29 Question Is teleconferencing available for audit committee meetings?
Answer Audit committee meetings can be held via teleconference. Boards
should refer to Ontario Regulation 463/97 – Electronic Meetings.
This regulation states that every district school board shall
develop and implement a policy providing for the use of electronic
means for holding of meetings of a board and meetings of a
committee of a board.
30 Question Can anyone attend audit committee meetings including
resource staff, employees from finance and/or the existing
internal auditors?
Answer No person shall be excluded from an audit committee meeting that
is open to the public except for improper conduct. Should a
meeting or a part thereof be closed to the public for the reasons
listed in Subsection 207(2) of the Education Act, employees of the
district school board can attend the closed section of the meeting
only at the discretion of the audit committee members.
31 Question Can external members vote as audit committee members?
Answer Yes, Section 11 – Meetings specifically states that each member
of the audit committee is entitled to one vote.
32 Question Who is responsible for setting the agenda for audit committee
meetings?
Answer It would be a best practice that agendas are set by the audit
committee chair in consultation with all interested parties including
other committee members, management, internal and external
audit.
33 Question Who can vote on agenda items?
Answer Only audit committee members can vote on agenda items at the
audit committee meeting.
34 Question Can trustees who are not audit committee members attend in-
camera sessions?
Answer They can do so at the discretion of the chair of the audit
committee.
35 Question It is unclear as to whether the chair of the audit committee
will get no vote, a single vote, or two votes?
Answer The regulation is very specific on this matter. The chair will cast
his or her vote as along with the other committee members. In the
event of a tie vote, the chair is entitled to cast a second vote.
REPORTING
36 Question The regulation states that the audit committee shall submit an
annual report to the Board. For clarity should it not state that
the audit committee shall submit an annual report to the
Board in private session?
Answer No, the annual report is a public document that will be presented
to the Board in open session.
37 Question The regulation mentions two specific reports that need to be
completed - one to the Ministry of Education and one to the
Board of Trustees. Are there truly two reports or will one
report satisfy both requirements?
Answer Section 15 of the regulation states that the annual report
submitted to the board shall then be forwarded to the Ministry of
Education by the board of trustees. Therefore it is indeed one
report.
38 Question Why is a report on the attendance records of the members of
the audit committee necessary as compared to other
committees of the board?
Answer A report on the attendance of audit committee members is
necessary as non attendance can be cause for removal of a
member from the audit committee under the regulation.
OTHER
39 Question Shouldn’t the audit committees report to an independent
body instead of the board of trustees?
Answer No as the board of trustees is ultimately responsible for the district
school board therefore the audit committee should report directly
to the board of trustees.
40 Question We strongly believe that information should not be available
to trustee members of the audit committee in advance of
other trustees and senior administration. To exclude these
aforementioned parties is not conducive to a collaborative
working environment for a school board.
Answer The Ministry agrees with this statement and believes that some
school boards have a current policy that committee agendas are
circulated to all trustees and senior administration at the same
time in advance of any committee meeting. This practice would
alleviate the knowledge gap that would be created if the agendas
were not shared in advance.
41 Question Will the Ministry provide specific funding for the audit
committee?
Answer No, the Ministry will not be providing dedicated funding for audit
committees.
42 Question During one of the presentations it was mentioned that an
external auditor has a conflict of interest by virtue of their
position. How do we avoid this?
Answer The external auditor’s attendance at an audit committee meeting
does not constitute a conflict of interest unless the external auditor
provides other services to the board that creates a material
relationship with the school board.
43 Question The mandate does not distinguish between regional internal
auditors and current board internal auditors and their roles
and responsibilities. Will the Ministry be providing further
guidance on the differences between these roles? For
example, we would appreciate guidance under "Reporting" as
to whether this reporting refers to regional internal audits,
board internal audits, or both.
Answer It is our understanding that the mandate of the board’s current
internal auditors is provided by the senior business officials. If this
is the case, they are excluded from the roles and responsibilities
of the regional internal audit team and are exempted from the
reporting requirements.
Should current internal audit staff satisfy independence
requirements and perform an internal audit function as described
in the sample internal audit mandate, they should report their
findings to the audit committee.
44 Question Is additional liability insurance required for the non-board
members?
Answer No. As appointed volunteers representing the school board, they
are covered by the board’s present liability insurance policy
provided that they have been authorized by the board to be an
audit committee member and are working within their established
authority.
45 Question Do audit committees make recommendations to their
respective boards or to regional audit committees?
Answer There was never mention of regional audit committees. Audit
committees must be established by all district school boards by
January 31, 2011. Audit committees report to the board of
trustees of their respective school boards.
46 Question Will the formation of this new audit committee mean that we
are going to be required to dissolve our existing audit
committee?
Answer School boards that currently have audit committees will need to
determine if they are in compliance with the requirements of the
audit committee regulation. If boards are, they can continue to
function under the status quo. If they are not, they will need to
modify their existing audit committees to be in compliance with the
regulation.
47 Question The regulation mentions that there will be training for
trustees on audit committees. Does this refer to all trustees
or just the trustees sitting on the committee?
Answer A two day training session will only be offered to trustees that
participate on the audit committee effective with the 2010-11
school year.
However, one of the training sessions will be videotaped (in
English and in French) and will be accessible for others to follow
on-line via the Ministry of Education Financial Analysis and
Accountability Branch’s website in the summer of 2011.
48 Question Do all school boards have to follow the audit committee
mandate?
Answer Yes
49 Question Our board has had an audit committee in place for several
years, with two external members who are accountants.
Since training will be mandated for audit committee
members, consideration should be given to how we ask or
require current members to attend this training.
Answer All current audit committee members will be strongly encouraged
to attend the training session to ensure the effective functioning of
audit committees. However, it is possible that some audit
committee members may already possess the necessary skills
and training to be an effective participant on an audit committee.
In these very specific circumstances, those individuals are
encouraged to have a discussion with Ministry of Education staff.
50 Question It would be important to clarify what aspects internal audit is
ultimately responsible for? Certain boards believe that it's
only related to financial aspects, others believe it includes all
operation aspects of the board - for example, transportation
and information technology. Could the Ministry provide
some examples of the types of internal audits that will be
performed?
Answer Internal auditors will be performing internal audits on all
operational aspects of a district school board. Examples could
include internal audits on information technology, special
education, transportation, purchasing, accounts payable, etc.
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