Audit Committee Charter

Federal Reserve Bank of Minneapolis
November 2017


The Audit Committee of the Federal Reserve Bank of Minneapolis Board of Directors operates under the bylaws of the Bank consistent with the policies of the Board of Governors of the Federal Reserve System. The Audit Committee acts on behalf of the Board of Directors and performs the functions necessary to assess and ensure the effectiveness and independence of the Bank’s internal audit activity.


The Audit Committee’s oversight of the internal audit activity includes, but is not limited to, reviewing the internal audit activity’s assessment of the adequacy and effectiveness of management’s governance, risk assessment, and control processes for (1) financial reporting; (2) effectiveness and efficiency of operations; (3) compliance with applicable laws, regulations1, and procedures; and (4) safeguarding of assets. 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, the external auditor, 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.


The Audit Committee consists of three or more members of the Bank’s Board of Directors, appointed annually by the Board Chair to serve during the calendar year or until their successors are appointed. Such members shall meet the qualifications issued by the Board of Governors of the Federal Reserve System. Any other member or members of such Board may attend the meeting of the Committee and while so attending shall be members of the Committee for all purposes, including the requirements hereof with respect to a quorum. One member of the Committee will be appointed by the Board Chair as the chair of the Audit Committee. At the discretion of the Board Chair, another member may be designated as vice chair. Two members of the Audit Committee shall constitute a quorum for transaction of business, and action of the Committee shall be upon vote of a majority of those present at any meeting of the Committee.

All members should 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.2 All members of the Audit Committee should have a working familiarity with basic finance and accounting practices, and at least one member of the Audit Committee should have banking, accounting, or related financial proficiency.3


The Audit Committee meets at least six times a year to permit adequate and timely discussion of audit results, losses, irregular occurrences, the number, nature, and resolution of suspected fraud occurrences and other matters of concern to auditors and directors. The Audit Committee Chair will approve the agenda for the Committee meetings and any member may suggest items for consideration. 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 Chair of the Audit Committee. Whenever such meetings are attended by other Bank officers, the Committee will hold executive sessions with the General Auditor. Following each meeting, the Audit Committee shall report its comments and recommendations to the Board of Directors of the Bank.


  1. Maintain the independence of the General Auditor and the internal audit activity.
    1. Review and approve the annual internal audit budget based on reasonable assurances that the budget is sufficient to carry out an effective audit program, review performance against the budget, and determine that significant variances, if any, from existing System and Reserve Bank guidelines are justified.
    2. Determine the activity is free from interference in determining the scope of audit engagements, performing audit work, and communicating results.
    3. Ensure that the internal audit function has appropriate access to the documents and individuals needed to accomplish its assigned responsibilities.
    4. With respect to internal audit’s work, review any significant Bank management difficulties, disagreements, or scope restrictions.
    5. Formally evaluate the performance of the General Auditor, following guidelines set forth by the Reserve Bank for evaluating the performance of other officers.
    6. Initiate for Board of Directors’ approval all actions affecting the salary or classification of the General Auditor and Assistant General Auditor.
    7. Recommend to the Board of Directors the appointment and termination (including separation payments) of the General Auditor and concur with any reassignment of the General Auditor to another position in the Reserve Bank.4
  2. Receive periodic training 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 Institute of Internal Auditors (IIA) International Professional Practices Frameowrk consisting of the Core Principles, Definition of Internal Auditing, Code of Ethics and the Standards for the Professional Practice of Internal Auditing.
  4. Approve internal audit charter revisions brought forward by the General Auditor.
  5. Review and approve the annual internal audit program, except for Supervision, Regulation and Credit (SRC), that provides for audits for which the scope and frequency are reasonably expected to provide an appropriate level of audit attention and coordinate with any external audit conducted at the direction of the Board of Governors. Approve significant changes to the annual audit plan. Approval of the audit plan for SRC activity is obtained from the Class C Directors of the Board. 
  6. Determine the extent to which the internal audit activity will become involved in consulting service engagements during review of the annual program and approve any such engagements.5
  7. 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
  8. Obtain from the General Auditor an independent and objective assessment of the adequacy and effectiveness of financial reporting controls; the effectiveness and efficiency of operations; compliance with laws, regulations, and procedures; and the safeguarding of assets.
  9. Receive at least annual updates regarding the Reserve Bank’s enterprise risk management program overseen by the Budget, Evaluation, and Risk Committee.
  10. Monitor the Reserve Bank's financial statement reporting process.
    1. Review quarterly financial statements with management.
    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.
  11. 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 reviews the external auditor’s annual statement of independence provided to the Board of Governors and reviews information on the external audit firm’s internal quality control processes.
    2. Review the external auditors' 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 (a.) any significant relationships between the external auditor and the Bank, (b.) disagreements concerning the financial statement preparation and (c.) 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.7
    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 as requested on procurement of external audit services.
  12. 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.
  13. 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.
  14. 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. Review annually the Audit Committee's performance of responsibilities set forth in the Charter.
  15. Establish, approve, and maintain procedures for the confidential anonymous submission by employees of complaints and concerns regarding questionable accounting, internal accounting control, auditing or potential fraud matters and the receipt, retention, and treatment of such complaints and concerns. Review and approve reports related to concerns directed through this process.
  16. Engage independent counsel and other advisors as determined necessary to carry out its duties.8
  17. Perform any other activities consistent with this Charter, the Bank’s Bylaws, the Board of Governors' rules and regulations and governing law, as the Audit Committee or the Board of Directors deems necessary or appropriate.

1 The internal audit activity should consult legal counsel in all matters involving legal issues, and should not render legal advice or substitute its legal judgment on legal matters for those of the general counsel.

2 Members of the Audit Committee are considered to be independent if they have no relationship with the Reserve Bank that might interfere with the exercise of their independence from management and the Bank. Examples of relationships include (i) a director being employed by that Reserve Bank within the past five years; (ii) a director accepting compensation from that Reserve Bank other than compensation for Board Services; (iii) a director being a member of the immediate family of an individual who has been employed by that Reserve Bank as an officer within the past five years; and (iv) a director being a partner in, or controlling shareholder or an executive officer of, any for-profit business to which that Reserve Bank made, or from which that Reserve Bank received, payments that have been significant to the Reserve Bank within the past five years. For purposes of this policy, a director who is an officer or director of a depository institution or its holding company is not considered to have a relationship that interferes with his or her independence solely because the depository institution makes payments to the Reserve Bank for financial services or an extension of credit.

3 Banking, accounting, or other relevant financial proficiency means significant employment experience in finance, accounting, auditing, or banking functions, professional certification in accounting, or other comparable experience or background which results in the individual's financial sophistication, including being or having been a Chief Executive Officer or other senior officer with financial oversight responsibilities.

4 S-2571 at 1-005 provides guidance on communication that should occur between the chair of a Reserve Bank’s Board of Directors and the chair of the Board of Governors’ Committee on Federal Reserve Bank Affairs concerning changes in the General Auditor position.

5 The Institute of Internal Auditors Standards for the Professional Practice of Internal Auditing defines consulting services as the range of services, beyond audit assurance services, provided to assist management in meeting its objectives. These services consist of “Advisory or partnering activities that add value and improve an organization’s operations, in which the nature and scope of services are agreed upon with the client.”

6 Consistent with Article II Section 3 of the Bank’s Bylaws, reports from internal audit reviews relating to the supervision and regulation function will be reviewed and approved by Class C directors of the Board instead of the Audit Committee..

7 SAS 99, consideration of Fraud in a Financial Statement Audit, requires the external auditors to obtain information to identify the risks of material misstatement due to fraud, including making specific inquiries of management, the General Auditor, and the Audit Committee. Members of the Audit Committee should be prepared to answer the auditors' questions about the risks of fraud in the Bank and whether the committee members have knowledge of fraud or suspected fraud affecting the Bank. Audit Committee members should also be prepared to discuss how the Audit Committee exercises oversight of the assessment of the risk of fraud, and activities that mitigate those risks.

8 FRAM 1-008 sets out additional conditions that must be observed by the Reserve Banks and requires Board of Governors' approval before engaging the external auditor to perform services. FRAM 1-083 provides procedures for Reserve Banks to follow when engaging outside legal counsel for fees of more than a specified threshold.