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R2570R E S O L U T I O N NO. 2570 WHEREAS, pursuant to Rule 24 of the Rules governing the procedures of the Board of Trustees of The Metropolitan St. Louis Sewer District, as implemented by Resolution No. 2494, adopted April 10, 2003, the Chairman of the Board of Trustees has appointed the Audit Committee of the Board, and WHEREAS, the Board of Trustees wishes to establish a Charter for the Audit Committee in order to formalize said Committee's procedures and interactions with the Board, and to create a foundation for the governance oversight responsibilities and quality and integrity of the District's auditing system for internal control, NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF TRUSTEES OF THE METROPOLITAN ST. LOUIS SEWER DISTRICT, THAT, the Charter of the Audit Committee, as attached hereto and made a part hereof, be and is hereby adopted. The foregoing Resolution was adopted September 9, 2004. Metropolitan St. Louis Sewer District Audit Committee Charter August 2004 Membership The Audit Committee will consist of members of the Board of Trustees knowledgeable in financial matters. The Chairman of the Board of Trustees will annually select Committee members and the Audit Committee Chair. The Committee shall select at least one Board member who is financially literate and preferably qualifies as a “financial expert” under the Sarbanes-Oxley Act of 2002. As needed, the Committee will select non-Board member advisors to the Committee who are financially literate. Purpose The Audit Committee assists the Board of Trustees in fulfilling its oversight responsibilities for the quality and integrity of the accounting, auditing, system of internal controls, and financial reporting practices of the organization and such duties as directed by the Board. The Committee’s role includes a particular focus on the qualitative aspects of financial reporting, and on the District’s processes to manage business and financial risk, and for compliance with applicable legal, ethical, and regulatory requirements. The Committee assists the Board of Trustees in its responsibility for the appointment, compensation, and oversight of both the public accounting firm (Section 7.080 of MSD Charter) engaged to prepare or issue an audit report on the financial statements and the District’s Internal Auditor (Section 7.030). This Charter establishes structure to guide the Audit Committee in meeting its responsibilities. Communications/Reporting The Committee is expected to maintain and promote open communication with the public accounting firm, the District’s Internal Auditor, the Board of Trustees, and management. This communication shall include closed sessions, consistent with Missouri law, at least annually, with each of these parties. The Committee Chairperson shall report on Audit Committee activities to the Board of Trustees. Education The District shall assist the Committee and the Board of Trustees in maintaining its financial literacy by providing the Committee and the Board of Trustees with educational resources related to accounting principles and procedures, current accounting topics pertinent to the District, and other material as requested by the Committee. Authority In discharging its oversight role, the Committee is empowered to investigate any matter brought to its attention consistent with standard audit practices. The Committee has full power to retain outside counsel or other experts for this purpose, pre-approve services for all financial statement auditing and non- financial statement audits, and seek any information it requires from external parties or employees (all of whom are directed to cooperate with the Committee's requests). Any outside counsel or expert will maintain its independence by reporting directly to the Audit Committee. Unless the Office of General Counsel is the subject of the Committee’s review, the District’s General Counsel will be included in the investigation and receive timely status updates and reports along with the Committee. Meetings The Committee will meet at least four times a year, with authority to convene additional meetings, as circumstances require. All Committee members are expected to attend each meeting, in person or via tele- or videoconference. The Committee will invite members of the Board of Trustees, management, auditors or others to attend meetings and provide pertinent information, as necessary. It will hold closed session meetings with auditors in executive sessions when necessary. Regular meeting agendas and minutes of the meetings will be documented. Responsibilities The Committee assists the Board of Trustees in its oversight role. The Committee’s responsibilities are delineated in the Audit Committee Checklist. The checklist may be updated annually to reflect changes in regulatory requirements, authoritative guidance, and evolving oversight practices. The most recently updated checklist will be an addendum to this Charter. Limitation of Audit Committee’s Role The Committee relies on the expertise and knowledge of management, the internal auditors and the public accounting firm in carrying out its oversight responsibilities. While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to develop internal controls; determine that financial statements and disclosures are complete and accurate and are in accordance with generally accepted standards and applicable rules and regulations; or to assure the compliance with the District’s internal policies, procedures and controls. Audit Committee Checklist 1 The Committee shall consist of members of the Board of Trustees including at least one member who is financially literate (and preferably could qualify as a “financial expert”) and may include non-Board member and staff advisors. The Committee shall report the composition to the Board of Trustees. Committee members should be free of any potential conflict of interest for serving on the Committee. 2 Assist the Board of Trustees in the appointment, approval, compensation, and oversight of the public accounting firm (Section 7.080). The Committee should ensure prompt payment to the public accounting firm, review that the 5-year term limit is observed and review that any engagement for non-financial statement audit services is acceptable. Unacceptable services include:  Bookkeeping  IS system design and implementation  Valuation services  Actuarial services  Internal audit outsource  Management or HR functions  Investment advice  Legal services 3 Assist the Board of Trustees in its review and appointment (or change) of the District’s Internal Auditor (Section 7.030). 4 With the assistance of the Office of General Counsel, review legal and regulatory matters that may have a material impact on the financial statements, related District compliance policies, and programs and reports from regulators. 5 Inquire of management, the Internal Auditor, and the public accounting firm about significant risks or exposures and assess the steps management has taken to minimize such risks to the District. Management should disclose whether any member of management has been found to participate in a fraud at the District. Annually, the Committee should review District Management’s assessment of internal controls (which includes financial, operational, compliance, and risk management) and report to the Board the results of its review. 6 Evaluate and report to the full Board of Trustees on the Committee’s and individual committee member’s performance at least annually. 7 Report to the Board of Trustees at least annually that all responsibilities of this Charter are performed. 8 Provide an open avenue of communication between the internal auditors, the public accounting firm, financial management and the Board of Trustees. This may include disclosure of illegal acts that impact the financial statements, off-balance sheet transactions, material adjustments, or review of the public accounting firm’s quality control processes. Report Committee actions to the Board of Trustees with such recommendations, as the Committee may deem necessary. 9 Meet with the public accounting firm in closed sessions to discuss any matters that the Committee or the public accounting firm believe should be discussed privately with the Audit Committee. 10 Meet with the Internal Auditor in closed sessions to discuss any matters that the Committee or the Internal Auditor believes should be discussed privately with the Audit Committee. 11 Meet with financial management in closed sessions to discuss any matters that the Committee or financial management believes should be discussed privately with the Audit Committee. 12 Provide a report to the Board of Trustees at least annually that includes the Committee’s review and discussion of matters with management and the independent public accounting firm. Provide a report to the Board of Trustees at least annually of the effectiveness of the internal audit function including plans, activities, staffing, and organizational structure. 13 Obtain regular updates from management and the District’s General Counsel regarding compliance matters. 14 The District should provide orientation and informational materials to assist the Audit Committee in meeting its responsibilities. This includes the review of significant accounting and reporting issues, complex or unusual transactions, judgmental areas, recent pronouncements, and their impact on the financial statements. 15 The Committee shall have the power to conduct or authorize investigations into any matters within the Committee's scope of responsibilities. The Committee can seek information it requires from external parties or from employees, all of whom are directed to cooperate with Committee requests. The Committee shall be empowered to retain independent counsel, accountants, or others to assist it in the conduct of any investigation. 16 Assist the Board of Trustees in approval of all financial statement audit and non-audit financial statement services. 17 The Committee shall meet four times per year or more frequently as circumstances require. The Committee may ask members of management or others to attend the meeting and provide pertinent information as necessary. 18 The agenda for Committee meetings will be prepared in consultation between the Committee chair (with input from the Committee members), financial management, the Internal Auditor and the public accounting firm. 19 At the start of the annual financial statement audit, the Committee will review with the Internal Auditor, the public accounting firm and financial management the audit scope and plan, and coordination of audit efforts to assure completeness of coverage, reduction of redundant efforts, the effective use of audit resources, and the use of independent public accountants other than the District’s appointed auditors. 20 Consider and review with the public accounting firm and the Internal Auditor: a. The adequacy of the District's internal controls including computerized information system controls and security, compliance with laws and regulations, including review of any incidents, their correction and any disciplinary action. b. Any related significant findings and recommendations of the independent public accountants and internal audit together with management's responses thereto. This would include any difficulties encountered or restrictions on gathering information. Resolve disagreements between the public accounting firm and management. 21 Consider and review with management and the Internal Auditor: a. Significant findings during the year (including compliance with laws and regulations) and management’s responses thereto. b. Any difficulties encountered in the course of their audits, including any restrictions on the scope of their work or access to required information. c. Any changes required relative to the planned scope of their audit plan. 22 Review with financial management any significant changes to accounting policies or standards. Understand their impact on the financial statements. 23 Review with financial management and the public accounting firm at the completion of the annual audit: a. The District's annual financial statements and related footnotes. This includes an understanding of all unadjusted differences, their significance and their disposition. b. The public accounting firm’s financial statement audit and its report. c. Any significant changes required in the public accounting firm’s audit plan. d. Any serious difficulties or disputes with management encountered during the course of the audit. e. Other matters related to the conduct of the audit, which are to be communicated to the Committee under generally accepted auditing standards. 24 Review with the Internal Auditor the coordination and investigation of allegations received through the District’s Business Conduct Alertline. The Alertline process is the primary method of receiving ethical or criminal allegations from District employees and the general public – in-person, telephone, mail, e-mail, etc. 25 Review with financial management and the public accounting firm at least annually the District’s critical accounting policies. 26 Review policies and procedures with respect to transactions between the District and management and Trustees, or affiliates of management or Trustees, or transactions that are not a normal part of the District’s business. 27 Review the periodic reports of the District with financial management, the Internal Auditor and the public accounting firm prior to release of financial reports. 28 In connection with each periodic report of the District, review management’s disclosure to the Committee. 29 Review financial filings and other published documents containing the District’s financial statements and consider whether the information contained in these documents is consistent with the information contained in the financial statements to regulators. 30 Monitor the appropriate standards adopted as a code of conduct for the District. The code of conduct should address issues such as extravagant entertainment, etc. The Audit Committee will periodically review the District’s policies and the review compliance to policies with the District’s financial management, Legal, and Public Affairs departments. 31 Monitor that the District does not hire employees of any public audit firm into any key financial management position within 12 months of working on engagement for the District. 32 Review and update the Audit Committee Checklist annually, request Board approval for changes, and ensure proper disclosure as may be required by law or regulation. 33 The Committee will perform such other functions as assigned by law, the District's Charter or Bylaws, or the Board of Trustees.