DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE “Demystifying the Finance Audit Committee”
DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE Agenda 1. How to set-up the Finance and Audit Committee 2. Terms of Reference 3. Recruitment 4. Fiduciary obligations 5. Understanding the scope of role & responsibilities Demystifying the Finance and Audit Committee 2
DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE 1. How to set-up the Finance and Audit Committee Demystifying the Finance and Audit Committee 3
DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE Benefits Provides forward- Supports Council in Reinforces Council’s thinking oversight of your making informed financial responsibility, Nation’s investments decisions accountability, transparency Demystifying the Finance and Audit Committee 4
DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE 2. Terms of Reference Demystifying the Finance and Audit Committee 5
DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE Structure - Overview • Report to Council Reporting • Chair and Vice-Chair are appointed by Council (one must be Councillor) • Minimum 3 members (at least 1 Councillor) Membership • For 4 or more members (at least 2 Councillors) • Majority of members must have financial competency Qualification Criteria • All members are independent Demystifying the Finance and Audit Committee 6
DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE Structure – Financial Competency • Financial literacy or related financial management expertise • Qualification requirements interpreted by Council • The ability to read and understand a set of financial statements; • An understanding of internal controls and procedures for financial reporting and risk management processes; Sample Financial Competency criteria • An understanding of the First Nation’s strategic objectives; • The ability to assess the general application of accounting policies and principles Demystifying the Finance and Audit Committee 7
DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE Structure – Independence • No direct or indirect relationship with the first nation government • Council required to make policies or procedures for independence criteria ▪ Establishing independence eligibility criteria in compliance with FMB Standards ⎼ Senior Manager, Finance Manager, Finance department ineligible ⎼ Councillors and Other employees may be eligible ▪ Requiring confirmation from candidate about independence ▪ Requiring annual conflict of interest disclosure statement • No direct or indirect relationship with the first nation government Demystifying the Finance and Audit Committee 8
DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE Case Study # 1 – Golden Opportunity Amazing First Nation is considering investing in a for-profit gold mining camp business and one of the Nation’s Councillors sits on the Board of Directors of this business as an independent Director (not in their capacity as Councillor or Chair of the Finance and Audit Committee). To help Council consider this opportunity, the mining camp business offered a fully-paid extended weekend to the Chief and his spouse to tour one of their existing mining camp operations in Costa Rica. The weekend would include staying at a resort in Costa Rica. At your table, discuss for 10 minutes the questions on the following page. Have one person write down your table’s answers and have one person speak to these to the larger group after 10 minutes. 9
DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE Case Study # 1 – Golden Opportunity Question 1 : Describe how you think the Finance and Audit Committee’s obligations would apply in this situation: • Annual Budget • Multi-Year Financial Plan • Conduct Expectations Question 2 : List and describe how you think any other obligations of the Finance and Audit Committee would apply in this situation. 10
DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE Case Study # 1 – Golden Opportunity Question 1 Answer Key : • Annual Budget: The affect to the annual budget would only apply if any work/feasibility studies related to the mining camp investment opportunity were to begin in the current fiscal year. An amendment to the budget would likely have to happen if this was not previously budgeted for. Future annual budgets would need to reflect any planned activities related to this investment opportunity. • Multi-Year Financial Plan: If this investment opportunity is to be analyzed further, the FAC would require that it be considered within the multi-year financial plan. This multi-year financial plan: is consistent with and supports the objectives of the First Nation’s strategic plan, a. b. is based on the projections of revenues, expenditures and transfers between accounts, includes the life- cycle management program for the First Nation’s tangible capital assets, and c. includes the economic and social impacts of the First Nation’s planned capital projects and projects undertaken by the First d. Nation with other governments. 11
DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE Case Study # 1 – Golden Opportunity Question 1 Answer Key (cont’d) • Conduct Expectations: The Finance and Audit Committee requires any member of the Committee, when exercising a power, duty or responsibility relating to the financial administration of the First Nation including: a. to act honestly, in good faith and in the best interests of the First Nation, b. to exercise the care, diligence and skill that a reasonably prudent individual would exercise in comparable circumstances, c. to act in accordance any applicable First Nation law, the Act, its regulations and any applicable standards made under the Act, and d. to avoid conflicts of interests and to comply with provisions policies and procedures established by Council for, the avoidance and mitigation of those conflicts. Who has a conflict of interest (personal gain at the expense of others) in this example? – Chief (if he goes on the paid vacation) and the Councillor who sits on the Board of Directors of the for-profit mining camp business. 12
Case Study # 1 – Golden Opportunity DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE Question 2 Answer Key : List and describe how you think any other provisions of the FAC would apply in this situation. • Annual report (any activities related to this investment (feasibility study, business plan) would need to be reported on in the annual report); • Financial reporting (monthly, quarterly, annual audited): any expenses spent by the Nation in relation to this investment opportunity would need to be reflected in financial reports. 13
DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE 3. Recruitment Demystifying the Finance and Audit Committee 14
DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE A job description 15
DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE Other ways to recruit • Ask your Director of Education (or equivalent) if they have a list of members who may have the qualifications you require • Ask during your annual general meeting • Social media 16
DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE 4. Fiduciary obligations Demystifying the Finance and Audit Committee 17
DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE Fiduciary obligations A committee member… • Independence is decided by Council • May not be considered independent if a financial relationship with the First Nation’s government may change a person’s thoughts or actions • If not considered to be independent, then the person cannot become a member 18
DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE Fiduciary obligations Duties of a committee member… Standard of Care; must place the best interests of the First Nation above their own interests FAC mostly concerned with 1. Financial Statements 2. Accounting Processes 3. Internal Systems of Control 19
DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE 5. Understanding the Scope of Roles and Responsibilities Demystifying the Finance and Audit Committee 20
Case Study # 2 – Who Hired This Auditor Anyways? DEMYSTIFYING THE FINANCE AND AUDIT COMMITTEE It is that time of year again and Amazing First Nation has begun preparations for the annual audit of its operations. Amazing First Nation went through elections recently and an entirely new Council was elected. There is also a new band manager and the finance manager is on maternity leave. Her replacement started 2 weeks ago after the position was not filled for 3 months. Amazing First Nation met with their auditor (from last year) and asked ‘how things were going with the audit’. The auditor replied that trial balances had been forwarded to them by Amazing’s new finance manager for all operations except the health centre. The auditor advised that ‘another audit firm’ does the audit of the health centre and that Amazing’s audit would be late if they did not receive the necessary information from this ‘other audit firm’ within the next week. Neither Council nor the band manager nor the finance manager at Amazing First Nation know about the health centre’s ‘other auditor’ yet the health operations are entirely part of the Nation and Council’s responsibility. Health is consolidated into Amazing’s audited financial statements. 21
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