Audit Committee Charter

Federal Reserve Bank of Minneapolis
December 2024

Authority

The Audit Committee¹ of the Federal Reserve Bank of Minneapolis (Bank) Board of Directors operates under the Bank’s Bylaws consistent with the policies of the Board of Governors of the Federal Reserve System. The Audit Committee has the authority to oversee the appointment, performance, and independence of the internal audit function.

Purpose

The primary purpose of the Audit Committee is to assist the Board of Directors in fulfilling its responsibility to ensure that management achieves organizational objectives while maintaining effective internal controls and risk management. The scope of this effort includes, but is not limited to, reviewing the internal audit function’s assessment of the adequacy and effectiveness of management’s governance, risk assessment, and control processes for (1) reliability and integrity of financial and operational information; (2) effectiveness and efficiency of operations and programs; (3) safeguarding of assets; (4) compliance with applicable laws and/or regulations. The Audit Committee reports the results of internal audit’s assessments to the Board of Directors and is responsible for maintaining open communication between the directors, senior management, the General Auditor, external auditor(s), and the Board of Governors.

To promote independent and objective assessments, the General Auditor reports directly to the Board of Directors through the Audit Committee and is not dependent on any Bank executive or operating officer for the security of his or her position. The Audit Committee ensures that the General Auditor has access to the Board of Directors, on a confidential basis, and that the audit function is independent of Bank management, both by intent and in actual practice.

Composition

The Committee consists of a minimum of three members of the Bank’s Board of Directors. Committee Members are appointed by the Chair of the Board of Directors, with approval of the full board, for one-year terms.²

All members shall be free from any relationship that, in the opinion of the Board of Directors, would interfere with the exercise of his or her independent judgment as a member of the Audit Committee.³

All members of the Audit Committee shall have a working familiarity with basic finance and accounting practices, and at least one member of the Audit Committee shall have banking, accounting, or relevant financial proficiency.⁴

Meetings

The Audit Committee meets at least six times per year to permit adequate and timely discussion of audit results; losses and irregular occurrences; the number, nature, and resolution of suspected fraud occurrences; and other matters of concern to auditors and directors. The Audit Committee Chair/members may provide input and suggested topics into the agenda for the Committee meetings. Meeting materials will be provided to the members as far in advance of the meetings as practicable. Management representatives may participate in the meetings upon invitation by the Audit Committee Chair. Whenever such meetings are attended by other Bank officers, the Audit Committee will hold executive sessions with Audit leadership team and/or General Auditor at the discretion of the Audit Committee Chair. Following each meeting, the Audit Committee shall report its comments and recommendations to the Board of Directors.

Audit Committe Oversight and Responsibilities

1. To establish, maintain, and ensure that Bank’s internal audit function independence and has sufficient authority to fulfill its duties, the Audit Committee will:
1. Discuss with the General Auditor and senior management the appropriate authority, role, responsibilities, scope, and services (assurance and/or advisory) of the internal audit function and other topics that should be included in the internal audit charter.
2. Ensure the General Auditor has unrestricted access to and communicates and interacts directly with the Audit Committee, including in executive sessions without senior management present.
3. Participate in discussions with the General Auditor and senior management about the “essential conditions,” described in the Global Internal Audit Standards, which establish the foundation that enables an effective internal audit function.
4. Review and approve (at least annually) the internal audit function’s charter with the General Auditor, which includes the internal audit mandate and the scope and types of internal audit services. Consider changes affecting the organization, such as the employment of a new General Auditor or changes in the type, severity, and interdependencies of risk to the organization.
5. Review and approve the risk-based Internal Audit Plan and any significant changes to that Plan.
6. Review and approve the internal audit function’s human resources administration, budgets, and expenses.
7. Collaborate with senior management to determine the qualifications and competencies the organization expects in a General Auditor, as described in the Global Internal Audit Standards.
8. Recommend and authorize to the Board of Directors the appointment, reassignment, and removal of the General Auditor including any roles and/or responsibilities of the General Auditor outside of Internal Auditing.
9. Review and evaluate the General Auditor’s performance, including compensation or classification, following guidelines set forth by the Reserve Bank for evaluating the performance of other officers.
10. Initiate for Board of Directors’ approval all actions affecting the salary or classification of the General Auditor.
11. Receive communications from the General Auditor about the internal audit function including its performance relative to its annual plan.
12. Ensure a quality assurance and improvement program has been established and results of the review are reviewed annually.
13. Make appropriate inquiries of management and the General Auditor to determine whether scope or resource limitations are inappropriate.
14. Receive updates and provides support on direction of significant items and/or challenges related but not limited to difficulties, disagreements, or scope restrictions that impact internal audit’s ability to fulfill its mandate.
15. Reviewing and approving internal audit’s strategic objectives consistent with the Bank’s strategies.
16. Receive communications provided by the General Auditor as required within the Global Internal Audit Standards.
17. Ensure the activity is free from interference in determining the scope of audit engagements, performing audit work, and communicating results.
18. Ensure that the internal audit function has appropriate access to the documents and individuals needed to accomplish its assigned responsibilities.
2. Receive initial onboarding training and periodic updates on relevant auditing, accounting, and Reserve Bank activities.
3. Review the effectiveness of the internal audit function including reports of quality assurance reviews of the internal audit activity to determine compliance with the mandatory elements of the Global Internal Audit Standards and Topical Requirements.
4. Participate in discussions with the General Auditor and senior management about the “essential conditions” described in the Global Internal Audit Standards, which establish the foundation that enables an effective internal audit function.
5. Review reports from the General Auditor, the external auditor, and the Board of Governors, as appropriate, about significant risks or exposures that might affect objectives, operations, or resources and assess the governance, risk management, and control processes established by management.
6. Obtain from the General Auditor an independent and objective assessment of the adequacy and effectiveness of management’s governance, risk assessment, and control processes for the following areas:
1. Reliability and integrity of financial and operational information.
2. Effectiveness and efficiency of operations and programs.
3. Safeguarding of assets.
4. Compliance with laws and/or regulations.
7. Obtain at least annual updates regarding the Reserve Bank’s Risk Management processes.
8. Monitor the Reserve Bank’s financial statement reporting process.
1. Review quarterly financial statements either in person with management or as a consent agenda topic.
2. Discuss significant accounting issues, including but not limited to significant changes in accounting policy, estimates, or asset impairments.
3. Review all material alternative treatments of financial information within the Financial Accounting Manual for Federal Reserve Banks related to material items that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor.
4. Monitor management’s process for assessing internal control over financial reporting and safeguarding of assets through periodic updates, including understanding how management evaluates materiality, and reviewing reports on significant findings and recommendations.
5. Periodically review with the Bank’s General Counsel or designee any legal matter that could have a significant impact on the organization’s financial statements.
9. Oversee the external audit services provided under contract with the Board of Governors.
1. The Audit Committee shares responsibility with the Board of Governors and Bank management to ensure that the independence of the external auditor is not diminished in fact or appearance. The Audit Committee receives assurance from the external auditor of their independence.
2. Review the external auditor’s proposed audit scope and approach for the Reserve Bank audit including understanding the scope of the external auditor’s review of the internal control over financial reporting and obtain reports on significant findings and recommendations, together with management responses.
3. Review the Bank’s annual financial statements and footnotes including any certification, report, opinion, or review rendered by the external auditor.
4. Following completion of the external audit, review with management, the external auditor, and the General Auditor:
1. Any significant relationships between the external auditor and the Bank.
2. Disagreements concerning the financial statement preparation.
3. Difficulties encountered during the course of the audit including any restrictions on the scope of work or access to required information.
5. Consult at least annually with the external auditor out of the presence of management and internal audit about internal controls, the fair presentation of the organization’s financial statements, updates on developments affecting the Bank’s external financial reporting, and certain other matters required under generally accepted auditing standards. The Members should be prepared to answer inquiries from the external auditors, especially concerning fraud and the mitigation of fraud risk.⁵
6. Pre-approve all arrangements with the external audit firm to perform additional services outside the scope of the Board of Governors’ contract.
7. Provide input to the Board of Governors on the quality of the external audit commissioned by the Board of Governors, including prompt notification of material concerns.
8. Provide input to the Board of Governors requested on procurement of external audit services.
10. Annually review the Ethics Officer’s or designee's report on the Bank’s ethics program, including the financial disclosure process and methods used to communicate the requirements of the Bank’s Code of Conduct (Code) to Bank staff, and any material violations of the Code.
11. Bring before the Board of Directors any matters reported by the General Auditor, external auditor, or Board of Governors that warrant the Board’s attention, and ensure that recommendations and concerns receive proper attention by Bank management.
12. Review information and/or reports for confidential anonymous submission by employees of complaints and concerns regarding questionable accounting, internal accounting control, auditing potential fraud matters, or insider risk and the receipt, retention, and treatment of such complaints and concerns.
13. Engage independent counsel and other advisors as determined necessary to carry out its duties.⁶
14. Perform any other activities consistent with this Charter, the Bank’s Bylaws, the Board of Governors’ rules, regulations, policies, and governing law, as the Audit Committee or the Board of Directors deems as necessary or appropriate.
15. Review the Audit Committee Charter annually, or as conditions dictate, and obtain approval from the full Board of Directors of any substantive changes to the Charter.

Annual Evaluation and Review

Review annually the Audit Committee’s performance of responsibilities set forth in the Charter.⁷

Approval of the Charter is recorded in the Audit Committee meeting minutes.