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Internal Audit Committee Charter

AUTHORITY
  1. The primary responsibility for financial reporting, internal control, and compliance with laws, regulations, policies and procedures within the Agency rests with executive management.

  2. The Board has oversight responsibility in these areas and is charged with establishing and supporting an adequate control environment within the Agency for ensuring accountability and demonstrating proper stewardship over public funds.

  3. Board policy is that the Agency operate in a fiscally sound and accountable manner, that internal controls be responsibly maintained, and that statutory laws, regulations, policies and procedures be followed. This is to be accomplished by means of reviews and audits of the Agency’s operations. All systems, processes, operations, functions, and activities within the organization are subject to an Internal Audit evaluation.

  4. As a means of achieving greater accountability and ensuring a higher quality of service, the Board has established the Audit Committee as a Permanent Committee. Committee members shall number no fewer than 3 and no more than 7, and shall be appointed to serve by the Board Chair. No special qualifications are required; however, if possible, Committee members should possess a basic understanding of operating, financial and budgetary standards and methodologies.

  5. The Audit Committee is created by the Board and is subject to the policies, procedures and direction of the Board. To this end, the Board has given the Audit Committee oversight responsibility relative to the audit function. The audit function is the systematic, objective appraisal by internal auditors, external auditors, and government auditors of the diverse operations and controls within the Agency to determine whether (1) financial and operating information is accurate and reliable, (2) risks to the enterprise are identified and minimized; (3) external laws, regulations, and internal policies and procedures are followed; (4) established standards are met; (5) resources are used efficiently and economically; and (6) the Agency’s objectives are effectively achieved. The Audit Committee will administer Board established policies and procedures as set out in the Audit Committee Charter and the Internal Audit Department Charter. Final reports prepared by or for the Audit Committee shall be forwarded to the Board in the appropriate manner and within a reasonable period of time.

  6. The Board and the President/Executive Director recognize the importance of having an impartial and objective assessment of the Agency’s management, and support and endorse an Audit Committee, which operates independently of management and free from organizational impairment. The Audit Committee will have unrestricted access to all departments, information, documents, personnel, and will have adequate resources. The Audit Committee shall exercise full authority over the audit function in accordance with policies and procedures established by the Board.
RESPONSIBILITIES
  1. The Audit Committee and the Internal Auditors should maintain a degree of professional independence when assessing management's performance of its responsibilities. In working to ensure the independence of the internal auditing function and that appropriate action is taken on audit findings, the Audit Committee should promote and enhance cooperation among Board members, Committee members, Internal Auditors, and staff.

  2. The Audit Committee will administer the oversight process relating to the Agency's (A) financial and other reporting; (B) internal control; and (C) compliance with laws, regulations, policies and procedures.

    1. Financial and Other Reporting. The Audit Committee will provide reasonable assurance to the Board that financial information reported by management substantively portrays the Agency's financial condition, results of operations, plans, and long-term commitments. The Audit Committee may review other reports requiring Board approval prior to submission to public sector entities. The Audit Committee will:

      1. Review financial and/or fiscal policies.

      2. Review financial statements, including interim financial statements, annual financial statements, auditors' opinions, and management letters.

      3. Participate in the selection of the external auditors through a competitive or other appropriate process and make recommendations relating thereto to the Board. Consideration should be given to rotating external auditors periodically.

      4. Oversee the external auditors including:

        1. Reviewing auditor engagement letters.

        2. Estimating fees where appropriate.

        3. Coordinating with Internal Auditors.

        4. Reviewing management's letter of representation and ascertaining whether any disagreements were encountered in obtaining the letter.

        5. Reviewing operational and reporting issues affecting the financial statements, which are discussed with management and the external auditor.

        6. Audit results and follow-up activities.

        7. Reviewing auditor performance.

        8. Non-audit services by external auditors or their consulting practice/affiliates

          • All such services will be submitted to, and approved by the Audit Committee.
          • Fees for such services shall not exceed 10% of the total fees paid during the year.
          • External auditors will not be engaged for:

            • Management advisory services related to business strategy, valuations, organization structures or other such line management related activities
            • Design and/or implementation of financial information systems
            • Internal Audit

        9. Meeting with the external auditor to discuss pertinent matters, including whether there were any restrictions on the scope of the audit or disagreements concerning the application of accounting principles and/or the accounting treatment of large or unusual transactions.

    2. Internal Control. The Audit Committee should understand the Agency's key financial-reporting risk areas and the internal control structure. The Audit Committee should review the reports and results of internal and external audits.

    3. Compliance with Laws, Regulations, Policies and Procedures. To provide reasonable assurance to the Board that its policies are being carried out, the Audit Committee will:

      1. Review compliance with laws, regulations, policies, procedures and rules regarding conflicts of interest;
      2. Review cases of employee misconduct, i.e., conflicts of interest, fraud and their resolution;
      3. Review current and pending litigation or regulatory proceedings that may have a significant impact on the Agency.
      4. Review the Internal Auditor's written report concerning the scope of reviews of compliance, any significant findings, and the resolution and follow-up on findings and recommendations.

  3. The Audit Committee will administer the oversight process relating to the Agency’s internal auditing function. To facilitate safeguarding the independence of the internal audit function, the Audit Committee will:

    1. Review and recommend to the Board the appointment, compensation or removal of the Director of Internal Audit and conduct periodic and annual performance reviews of the Director.

      1. The Director of Internal Audit shall administer the daily operations of the Internal Audit Department and shall employ persons, firms, partnerships or corporations deemed necessary by the Audit Committee to execute Board policy.

      2. The Director of Internal Audit shall report directly to the Audit Committee, which shall be responsible for his/her annual performance evaluation and will recommend appropriate compensation for the Director to the Board.

    2. Review and Approve Audit Plans and Budgets.

      1. The Audit Committee should satisfy itself that the internal auditing function's objectives and goals, scope of work, staffing plans, financial budgets, continuing professional education plans, audit schedules, and report follow-up activities are sufficient to meet the needs of the Agency.

      2. The Audit Committee will approve an annual Audit Plan and any subsequent special audit requests requiring more than 40 hours. The Director of Internal Audit has authority to investigate matters requiring 40 hours or less.

      3. The Audit Committee will review and approve the annual Internal Audit Department budget, which will then be incorporated into the Agency's total budget for submission to the Board for approval.

    3. Review Audit Results.

      1. The Director of Internal Audit will provide full reports and/or summary information on a regular basis to the Audit Committee concerning the results of reviews of financial reporting, compliance with laws, regulations, policies, procedures, and internal controls.

      2. Specific findings and recommendations of a significant nature are also to be reported in a timely fashion to the Audit Committee, as well as comments on the status of previous recommendations as required.

      3. After review, the Audit Committee will forward the reports to the Board along with any comments or recommendations.

    4. Request Audit Projects.

      1. The Audit Committee may request Internal Auditors to perform special studies, investigations, or other services in matters of interest or concern to the Committee or Board that are outside the scope of the annual Audit Plan. Such projects could include investigation of areas of high control risk, potential or suspected fraud or other irregularities, compliance with laws, regulations, policies and procedures, or evaluation of external auditors.

      2. If a Board member, officer of the Agency, or other employee of the Agency request a project outside the scope of the annual audit plan and the Director of Internal Audit estimates that the project will exceed 40 hours, the Director will then assess whether the project is a management issue or an issue appropriate for Internal Audit involvement. For audit appropriate projects the Director will assess the business risk, estimate the time, and make a recommendation to the Audit Committee as to whether or not to initiate the project and its priority. The recommendations will be made to the Audit Committee at the next available opportunity. If the Audit Committee approves a project, they will set the prioritization.

    5. Perform Quality Assurance Assessments.

      1. The Audit Committee must necessarily evaluate the performance and effectiveness of the Internal Audit Department. The criteria used for judging the quality of the internal auditing function are found in the Government Auditing Standards and the Institute of Internal Auditors' Standards for the Professional Practice of Internal Auditing.

      2. Foremost in the Standards is the requirement for a periodic external review of the Internal Audit Department’s performance. This external examination may also include a quality assurance review, or some other process deemed appropriate by the Audit Committee. The Audit Committee determines the Internal Audit Department's conformity to industry standards by means of the periodic external review.

    6. Support Communication with Internal Auditors and Safeguard the Independence of the Internal Auditing Function.

      1. The Director of Internal Audit should have direct, continual communication with the Audit Committee and may attend appropriate management, Committee, and Board meetings.

      2. Internal Auditors must be trusted by and work effectively with all levels of management while keeping in mind the best interests of the organization as a whole. The Internal Audit Department must have an organizational status sufficient to ensure a broad range of audit coverage, unrestricted access to all pertinent documents and information, the cooperation of personnel, and adequate consideration of findings and recommendations.

    7. Auditor's report on personnel and other matters.
      The Director of Internal Audit shall have the authorization to request meetings with the Audit Committee, in private, to discuss personnel or other issues as permitted within the provision of applicable law.

    8. Retention of independent outside consulting expertise.
      The Director of Internal Audit may retain independent outside consulting expertise when such need arises. The request for these services shall be communicated in advance with the Audit Committee and comply with applicable Agency procurement rules and regulations.

    9. DART provides an ethics hotline to facilitate reporting of financial concerns, suspected wrongdoing or fraud. A Public Integrity Committee (PIC) composed of the President/Executive Director, General Counsel, and Director of Internal Audit will initiate investigation of such activity and report the result of significant activities to the Audit Committee.
RELATIONSHIPS
  1. Executive management has the primary responsibility for daily operations and financial and other reporting requirements of the Agency. Executive management also has direct input into the Internal Auditors' plans, which are in turn reviewed and approved by the Audit Committee. Internal Auditors must be responsive to the needs of executive management, yet remain objective.

  2. The Director of Internal Audit must periodically communicate directly with the Audit Committee as articulated in the Audit Committee Charter and the Internal Audit Department Charter. Only if such a reporting relationship exists will Internal Auditors have appropriate recourse in cases of misconduct or fraud involving executive level management.

  3. It is especially important that the autonomy of the internal auditing function be safeguarded. Internal Auditors must remain free from organizational impairment and be able to operate independently of management, including the chief financial and/or accounting officers, in order to ensure objective reviews of the internal control structure and the financial reporting process.

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