Effective municipal oversight requires city council members who are aware of their oversight responsibilities and are prepared to hold city management accountable for achieving expected results. Oversight is a critical governance function performed by council and its sub-committees in which the audit committee plays an important role. Where a municipality has an auditor general (AG) function, the audit committee is responsible for receiving its reports and holding management accountable for correcting deficiencies and implementing the AG’s recommendations.
In 2018, the Canadian Audit and Accountability Foundation (CAAF) began a research program to identify how municipal audit committees can become more effective in carrying out their responsibilities. With input from CAAF’s Municipal Oversight Advisory Group, composed of former municipal councillors, auditors general, and other experts in the audit community, we have identified 12 good practices and corresponding indicators that municipal audit committees should strive to implement to support effectiveness.
These good practices are broken down into three categories: foundations, actions and follow-up.
- Foundations are the basic structures that need to be in place such as legal basis and mandate, budget, and the right members with the knowledge and expertise to carry out that mandate.
- Actions are the practices carried out by the audit committee to ensure that it is addressing audit recommendations in an effective and timely manner.
- Follow-up are the practices in place to ensure that recommendations are being implemented by city management and that the audit committee ensures that its work is sustained and continues even after its membership changes.
For each good practice, detailed indicators are provided to specify measures that should be in place to help the audit committee in achieving the good practice.
Good Practice #1
The audit committee (or equivalent) has a clear statement of responsibilities (such as the mandate, by-law, charter, and/or terms of reference).
- The committee’s responsibilities have statutory authority (from provincial governments and/or city by‑laws).
- The committee has clear written terms of reference and/or mandate.
- The committee’s power to convene its own meetings is enshrined in by‑laws.
- A minimum number of meetings to address audit reports from the auditor general are guaranteed.
- Committee members are permitted to meet privately with the auditor.
- If it’s not possible to create a separate audit committee and the council or board as a whole must act as the audit committee, it convenes itself as an audit committee to address the specific audit committee responsibilities.
Good Practice #2
The committee members are informed about key accounting principles related to risk, and the application of audit standards by auditors.
- The standards used for the audits are discussed at the audit committee with the auditors, and the interpretation of these standards is disclosed in the auditors’ audit plan.
- Audit standards are explained to councillors or board members when requested.
- Council or board members understand the implications of the standards that are the foundation of how auditors reach their conclusions.
Good Practice #3
The committee has the appropriate budget, resources, and administrative support to complete the work.
- The committee develops an annual plan that outlines the elements to be covered in each planned meeting to align with its stated responsibilities and the timeline of related activities.
- Each meeting agenda is developed to reflect the annual plan and other pertinent topics that arise during the year.
- The committee has sufficient support staff to undertake its duties, such as organizing the meetings, making necessary documents available, setting up the communication and presentation technology, taking minutes, and supporting follow-up.
- The committee has a suitable space to meet, and a regular, or predictable, meeting time.
- Staff announce meeting times and agendas in advance.
- The committee has a budget or a procedure in place to hire an expert, if needed.
Good Practice #4
The committee is composed of members with appropriate expertise.
- There is a defined process to appoint elected councillors and to select external members on the committee.
- The council determines the process to select the committee chair, taking into account expertise, skill set, and independence.
- The committee has the mandate and means to include external members to complement skill sets. Where external membership is not permitted, members have the resources to consult experts, as required.
- There are members with accounting, public finance, and audit expertise.
- Committee members do not have a current or recent management function in the municipality.
- Members, particularly external members, complete an annual questionnaire on compliance with a code of ethics, and their being free from any conflicts of interest.
- If a conflict of interest or perceived conflict exists, the member declares it and excuses themselves from the meeting.
Good Practice #5
The committee ensures its members have adequate and relevant orientation.
- Committee members are given an orientation that explains the committee’s purpose, procedures, and the roles of the chair and of members.
- Members understand the types of audit (financial audit, performance audit, internal audit, and special studies), their audit mandates, their general audit process, and the role of the audit committee in regard to each type of audit.
- Committee members have access to professional development to ensure they understand current issues that impact their role.
- The committee ensures its members are aware of good practices and how they are applied at their committee.
- The committee has an agreed-upon process for dealing with the media. Members are offered training on how to interact with the media.
- Committee members understand the accountability relationships among key stakeholders, including: the external auditors, the auditor general, the city manager/director general, and the treasurer.
- Members understand the importance of the accountability relationships and follow up to support the implementation of recommendations.
Good Practice #6
The committee and its chair foster a cooperative relationship between members around a commitment to improving public accountability.
- Cooperation and respect among members are encouraged.
- Questions, concerns, and differences of opinion are openly addressed in a respectful manner.
- A focus on fulfilling the committee’s mandate and improving public accountability is used to unite members even when they face differences of opinion and of priorities.
Good Practice #7
The committee engages constructively with management.
- Interdependence between the committee, auditors, and management is fostered, while independence roles are respected.
- The committee treats invited guests respectfully.
- Members ask constructive questions to understand management’s perspective.
- Questions are related to the topic being addressed.
- The appropriate staff member is called to answer any committee questions and provide, when necessary, related documentation.
- The scope of the meeting is communicated to managers for the area under discussion, in advance of a meeting, so they can prepare appropriately.
- Members ensure their questions are answered and request written follow-up if questions cannot be answered at the meeting. The meeting minutes are a good record of the answers provided by management and of the necessary follow-up.
Good Practice #8
The committee has dedicated time on the agenda to look at audit reports.
- The committee dedicates sufficient time to:
- analyze and understand the financial statements and discuss the audit results and the related audit opinion
- discuss the reports of the external financial auditor or the auditor general issued about the financial statement audit
- examine and discuss the auditor general’s reports issued on performance audits or special studies
- examine and discuss the pertinent reports issued by an internal function, such as internal auditor, controller general, and inspector general
- The committee has dedicated time to speak privately with the auditors to get clarity on:
- the reports and their recommendations
- the relationship with management
- any difference of view with management
- any particular risk of fraud or other issues
Good Practice #9
The committee reports to council on its work.
- The committee issues reports to council on management’s progress on implementing audit recommendations until the implementation is concluded.
- The committee issues an annual report to the council or board that summarizes how it has achieved its mandate and responsibilities and its activities. In this report, the committee makes comments on issues and matters of concern and makes recommendations when necessary. This will permit the council or board to acknowledge the committee’s work and also ensure that the committee has a proper record of its work.
- The committee evaluates its own work and reflects on it (through an anonymous survey, peer review, and/or self-assessment).
Good Practice #10
The committee is responsible for ensuring audit recommendations are implemented.
- The committee discusses the recommendations raised by audit reports.
- The committee obtains assurance that the management accountability process is effective in monitoring implementation of the management action plans responding to the audit recommendations.
- The committee communicates with management to obtain direct information about the action plans and to make any necessary improvements to the accountability process, and invites management to attend audit committee meetings in this regard.
- The committee follows up with management and auditors to ensure, with evidence, that recommendations have been implemented.
- The committee, in its report to the council, is allowed to make recommendations in addition to the auditor’s.
Good Practice #11
The committee gets action plans and status updates from management that outline how they will implement recommendations.
- Management provides detailed action plans in response to the audit recommendations.
- The action plans are reviewed, and the implementation of the recommendations is tracked and recorded.
- Through collaboration with the auditors and the city manager/director general, the committee obtains and reviews detailed status updates from departments.
- The plans provide details on how management will address the auditor’s recommendations and who has responsibility for implementation.
- The action plans and status updates include realistic timelines and completion dates.
Good Practice #12
The committee ensures the continuity of work and transfer of knowledge.
- The council or board appoints an audit committee in a timely manner following an election.
- The committee has a method to ensure that work continues when committee membership changes.
- As part of the orientation session, a record of committee work is provided to members for their review.
- Training is provided to new committee members.