ACS Audit Committee: an Overview

Each year, ACS issues an annual report recapping its activities and accomplishments, all in support of its 158,000 members and the discipline of chemistry. Within each annual report is a copy of the society's financial statements, accompanied by an opinion from the independent auditors. ACS routinely receives unqualified, or clean, opinions on its financial statement, and 2004 was no exception.

However, careful readers may notice something new in the society's 2004 annual report (soon to be released on the Web at chemistry.org/acsannualreport and available in print by request). For the first time, the financial report includes "Management's Statement of Responsibility." The statement describes management's responsibility for the society's financial statements and system of internal controls. It is signed by ACS Executive Director and CEO Madeleine Jacobs and Treasurer Brian A. Bernstein.

The committee assists the board in fulfilling its fiduciary responsibilities, especially with respect to the integrity and sufficiency of the society's accounting policies, reporting practices, and system of internal controls.

The addition of the management's statement is the result of several actions initiated by the society's Audit Committee during the past year. Starting in March 2003, the committee undertook a study of the Sarbanes-Oxley Act (SOX), legislation passed by Congress in the wake of numerous corporate and accounting scandals. The act was designed to reduce fraud and conflicts of interest, improve the accuracy and reliability of financial disclosures, and restore public confidence in corporate financial statements.

While SOX applies only to publicly traded companies, it contains several provisions that are considered "best practices" for not-for-profit organizations. The committee's decision to review the act in no way reflected a concern for the society's audit process or financial statements. The committee simply wanted to identify and implement best practices for ACS. In early 2004, finance staff held a roundtable discussion with several large not-for-profit organizations to discuss their approach to SOX. As a result, the finance staff found that ACS was ahead of other not-for-profits that were considering adopting provisions of the act as internal policies for their own organizations.

As a result of its study, the committee determined that several provisions of SOX are worthy of further consideration by the society. The committee recommended and the ACS Board concurred that adoption of specific policies derived from SOX would provide added assurance regarding the society's financial policies. Examples of policies recently adopted are as follows:

◾ The society is prohibited from hiring its audit firm for nonaudit services.
◾ The society requires the audit firm to rotate its lead partners every five years.
◾ The society requires its audit services to be bid out at least every eight years.
◾ The ACS executive director and CEO and treasurer are required annually to issue a statement regarding the accuracy of the society's financial statements and adequacy of internal controls.

Other issues considered by the committee in 2005 in connection with its SOX study include a code of ethics and a "whistle-blower" policy. A code of ethics that extends to all ACS staff was adopted in February, and a draft whistle-blower policy was reviewed by the committee in San Diego and is currently in review. A final policy will be adopted later this year.

Although largely unknown to the ACS membership, the work of the Audit Committee is critical to the continued health and well-being of the organization. While those who have served on the committee are fully acquainted with the responsibilities of an audit committee, ACS members who would like to know more about the committee's responsibilities should refer to Board Regulation III, 14. The regulation describes the relationship between the committee and the board of directors and sets forth the committee's responsibilities.

The committee assists the board in fulfilling its fiduciary responsibilities, especially with respect to the integrity and sufficiency of the society's accounting policies, reporting practices, and system of internal controls. The regulation specifies that the committee, on behalf of the board, has the authority to select and appoint the society's independent accountants and to serve as the liaison between the board, the external auditors, and management.

The committee consists of three to five persons, with at least two being current members of the board of directors. In its role as liaison, the committee meets with the auditors to discuss the scope of the annual audit and review the society's audited financial statements and management letter. The committee is the board's principal agent in ensuring the independence of the external auditors, the integrity of management, and the adequacy of the society's financial disclosures. The committee also meets with the finance staff to discuss the selection of the audit firm, review internal financial controls and procedures, and review the appropriateness of accounting policies.

The Audit Committee carries out an important function for the board of directors and fulfills an important role for the society's membership. By providing this brief overview, the Audit Committee hopes to provide members with a better understanding of how it serves the society. Please contact the committee's staff liaison, ACS Treasurer Brian Bernstein (b_bernstein@acs.org), with questions or comments.

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ACS Comments, which appear in C&EN from time to time, are written by society officers and committee chairs. They are available on C&EN Online at http://www.cen-online.org/html/acscomments.html . Comments are archived back to 2000.