The Role of the Audit Committee
Audit committees are essential to the e1ective functioning of public retirement systems, serving to uphold financial integrity and accountability. These committees, mandated by the SEC, are commonly found in state, county, municipal retirement boards, and publicly traded companies. Their role is vital in overseeing the accuracy of financial statements, evaluating internal controls, monitoring auditor performance, and resolving disputes related to financial reporting. A key aspect of their responsibilities includes fraud prevention, compliance oversight, and ensuring the independence of the internal audit function.
In addition to these foundational tasks, audit committees are responsible foroverseeing compliance programs, enterprise risk management, and cybersecuritye1orts. They should conduct periodic assessments of compliance and riskmanagement e1ectiveness while collaborating closely with key executives, such asthe Chief Risk O1icer and Chief Technology O1icer, to identify and mitigate systemspecificperformance risks. Critical responsibilities include ensuring regularindependent evaluations of compliance programs, reviewing the retirementsystem’s risk profile and management plans, and developing robust cybersecurityand data protection strategies.
For the audit committee to operate effectively, several practicalconsiderations must be addressed. Regular meetings—typically held quarterly—should be scheduled with all relevant stakeholders, and an annual activity calendar should be established to ensure all responsibilities are met in a timely manner. Ane1icient reporting process to the full board is vital, as it covers both routineresponsibilities and any special investigations. The committee may also benefitfrom engaging independent advisors and ensuring that members pursue continuing education to mitigate knowledge gaps. Moreover, conducting periodic selfevaluations provides a framework for identifying strengths and areas for improvement.
To fulfill their key oversight roles, audit committees should pose pivotalquestions across various functions, including financial risks and controls, internaland external audits, compliance, performance risk management, and cybersecuritythreats and data protection. Critical inquiries can include evaluating the accuracy offinancial statements, assessing the state of internal controls, and understandingemerging risks that may impact the retirement system. Ultimately, a proactive andknowledgeable audit committee – equipped with the right resources and asking thepertinent questions– plays a significant role in safeguarding the system’s integrityand governance, thereby protecting the interests of beneficiaries and enhancing overall board effectiveness.
