With the advent of Sarbanes-Oxley legislation in the aftermath of Enron and other financial scandals, the chairman of the Senate Finance Committee, Senator Charles Grassley, and the ranking member, Senator Max Baucus, sent a letter to INDEPENDENT SECTOR encouraging it to assemble an independent group of leaders from the charitable sector to consider and recommend actions to strengthen governance, ethical conduct, and accountability within public charities and private foundations. Consequently, the INDEPENDENT SECTOR created the Panel on the Nonprofit Sector with 24 distinguished leaders from public charities and private foundations from around the United States.
In June, 2005, the Panel issued its final report to Congress and the INDEPENDENT SECTOR, making recommendations for improved nonprofit governance in many areas. One of its recommendations parallels a legislatively required mandate for public companies. This involves the establishment and use of an audit committee, separate and apart from the finance committee. In 2004, California legislatively mandated the establishment of audit committees for charitable organizations with annual gross revenues over $2 million.
One of the primary duties of a board of directors of a charitable organization is to ensure that all financial matters of the organization are conducted legally, ethically, and in accordance with proper accounting rules. In overseeing the audit process, the full board must maintain its ability to objectively assess the financial controls, policies, procedures, condition of the organization, and oversee the external auditor.