ACCOUNTABILITY

The extent to which an organization is answerable for its processes and outcomes to a variety of relevant stakeholders including: consumers, community representatives, governing bodies, and governmental regulators.		  
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  MANAGEMENT

See ADMINISTRATION		  
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  PRACTICE

Established actions or ways of proceeding in the regular performance of organizational duties. Policies and procedures often guide practice.		  
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  GOVERNING BODY

A person or persons with the legal authority and responsibility to set policy and oversee the operations of an organization. Generally, the governing body is a group, such as a board of directors or board of trustees. While the exact responsibilities of the governing body depend on the nature and character of the organization, the governing body has minimum fiduciary responsibilities to the organization set by statute, regulation, and case law, and typically assume responsibilities for long term planning, risk management, and evaluation and effectiveness of management.		  
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  AUDIT

See FINANCIAL AUDIT		  
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  PREVENTION

Actions taken to minimize and/or eliminate social, psychological, or other conditions. Prevention can occur at the individual, group, community, and societal levels and enhances opportunities to achieve positive fulfillment.		  
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Financial Management
  
Private Org Public Agency  

FIN 2: Internal Control Environment*

 

The organization establishes an internal control system that includes mechanisms for:

  1. review by the governing body’s audit committee, as applicable;
  2. management review by more than one individual;
  3. assurance that management directives are carried out;
  4. prevention of error, mismanagement, or fraud;
  5. safeguarding and verification of assets; and
  6. segregation of duties to the extent possible.
Update: Deleted Interpretation - 12/15/11

Original FIN 2 Interpretation:

In order to receive a rating of 1 for FIN 2 the organization must have an independent audit committee that does not include any organization staff as members, and otherwise meets the requirements of the standards.

If the audit committee is not fully independent an organization may be able to receive a rating of 2 if: a) the selection and oversight of the auditor is handled by the board's executive committee, b) a board member other than the chair of the finance or executive committee is in charge of the board's audit oversight function, and c) no organization staff, including the CEO and CFO, participate in any aspect of overseeing the audit process.

When the organization is not otherwise required to have a governing body, an audit committee is not necessary, but the owner is responsible for demonstrating that the intent of the standard is being implemented in practice.

The American Institute of CPAs recommends as best practice that an auditing firm not provide both auditing and non-auditing services, such as bookkeeping and actuarial services to the same organization.

related RPM 5

FIN 2.01

 
Update: Deleted Standard - 12/15/11

Original FIN 2.01 Standard:

The governing body’s audit committee:

  1. selects and meets with an independent auditor;
  2. reviews the annual audit;
  3. makes a recommendation to the full board; and
  4. reviews findings of the auditor’s evaluation of the organization’s internal control system.

Note: Element (c) is not applicable to organizations not otherwise required to have a governing body.

NA: The organization is not required to conduct an audit.

FIN 2.02

 
Update: Deleted Standard - 12/15/11

Original FIN 2.02 Standard:

Audit committee members cannot also serve as a top manager of the organization or receive compensation for professional services they provide as consultants.

NA: The organization is not required to conduct an audit.

NA: The organization is a private, for-profit organization.

FIN 2.03

 
Update: Moved Standard to FIN 6.06 - 12/15/11

Original FIN 2.03 Standard:

The principal executive and financial officers certify in writing that financial statements are accurate and fairly represent the financial condition and operations of the organization.

Interpretation: The CEO and CFO of nonprofit organizations should review IRS Form 990 before it is submitted to ensure that it is accurate, complete and filed on time.

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PURPOSE: The organization’s financial accountability and viability are achieved through the application of sound financial management practices that accord with legal and regulatory requirements.
 
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