Audit Committee Charter

As Last Amended on July 31, 2017

Audit Committee Charter Quick Links

Composition
Purpose
Duties and Responsibilities
Resources and Authority
Procedures and Administration

I. Composition:


The Audit Committee (the "Committee") of the Board of Directors (the "Board") of NIC Inc. (the "Company") shall be composed of at least three directors, each of whom shall be an independent director. The term “independent director” describes directors who (a) qualify as independent directors pursuant to the applicable provisions of the Securities Exchange Act of 1934, the rules promulgated thereunder, and the rules and regulations of the NASDAQ Stock Market, and (b) shall be free of any material relationship that, in the business judgment of the Board, would interfere with the exercise of their independence from management and the Company (either directly or as a partner, stockholder, or officer of an organization that has a relationship with the Company). Members of the Committee shall be appointed by the Board. The Board shall appoint one member of the Committee to act as its Chair.  The Board may remove members of the Committee, with or without cause. Candidates to fill subsequent vacancies in the Committee shall be appointed by the Board based on nominations by the Corporate Governance and Nominating Committee.

 

Each Committee member shall also be able to read and understand fundamental financial statements, including the Company's balance sheet, income statement, and cash flow statement. At least one Committee member shall satisfy the financial sophistication requirements of the NASDAQ Marketplace Rules. In addition, either (i) at least one Committee member must qualify as an "audit committee financial expert" as defined by the Securities and Exchange Commission or (ii) the Committee must advise the Company that none of its members so qualifies.  In determining financial expertise, the Board may consider past employment experience or background, including being or having been a chief financial officer or other senior officer with financial oversight responsibilities. In addition to these requirements for Committee members, the Board shall consider other applicable stock exchange or regulatory requirements in determining a director’s eligibility to serve on the Committee.


 

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II. Purpose:


The purpose of the Committee is to: (i) oversee the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company, (ii) select the independent auditors, (iii) evaluate the independence of the independent auditors (and in so doing, it is the responsibility of the Committee to maintain free and open means of communication among the Board, the independent auditors and the financial management of Company), and (iv) oversee risk assessment and risk management with particular focus by the Committee on financial risk exposure and risks relating to the Company's financial statements and financial reporting process.


 

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III. Duties and Responsibilities: 


The management of the Company is responsible for the preparation, presentation and integrity of the Company’s financial statements. Management is responsible for maintaining appropriate accounting and financial reporting principles and polices and internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent auditors are responsible for planning and carrying out a proper audit or reviews prior to the filing of each report on Forms 10-K or 10-Q as well as other procedures.  

 

In carrying out its responsibilities, the Committee believes its policies and procedures should remain flexible, in order to best react to changing conditions and to provide oversight to the Board and stockholders to help see to it that the corporate accounting and reporting practices of the Company are in accordance with all applicable requirements.  The function of the Committee is oversight.  In fulfilling their responsibilities hereunder, it is recognized that the members of the Committee are not employees of the Company and are not, and do not represent themselves to be, accountants or auditors by profession or experts in the fields of accounting or auditing, except and to the extent any member of the Committee acts as a "audit committee financial expert".   Therefore, it is not the duty or responsibility of the Committee to conduct “field work” or other types of auditing or accounting reviews or procedures, and each member of the Committee shall be entitled to rely on (i) the integrity and skill of those persons and organizations within and outside the Company that it receives information from and (ii) the accuracy of the financial and other information provided by such persons or organizations absent actual knowledge to the contrary (which shall be promptly reported to the Board).

In carrying out these responsibilities, the Committee will:


A. Meet at such times as it deems necessary or appropriate, but not less than semiannually.

B. Maintain written minutes of each Committee meeting. Such minutes shall be distributed to each member of the Committee and to the other members of the Board.

C. Report to the Board concerning each meeting of the Committee and as otherwise requested by the Chair of the Board.

D. Evaluate its own performance at least annually. The performance evaluation shall be conducted in such a manner as the Committee deems appropriate and may be presented to the Board either orally or in writing.

E.  Review and select the independent auditors, to audit the financial statements of the Company and its subsidiaries.  Such independent auditors shall report directly to the Committee and be ultimately accountable to the Board and the Committee as representatives of the stockholders, and the Committee shall be directly responsible for the appointment, compensation, retention and oversight of the work of the independent auditors (including resolution of disagreements between management and the independent auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company. Prior to engaging any independent auditors for the first time, the Committee shall, in accordance with the applicable requirements of the Public Company Accounting Oversight Board ("PCAOB") Rule 3526, as may be modified or supplemented, (i) require that the independent auditors describe in writing to the Committee all relationships between the independent auditors or any of their affiliates and the Company or persons in a financial reporting oversight role at the Company, that may reasonably be thought to bear on the independent auditors' independence; (ii) discuss with the Committee the potential effects of any such relationships on the independent auditors' independence; and (iii) document the substance of such discussion(s) with the Committee. Collectively, requirements (i), (ii), and (iii) shall be referred to as the "Rule 3526 requirements."

F.  The Committee shall approve in advance any audit or permitted non-audit service provided to the Company by the independent auditors, all as required by applicable law or listing standards and in accordance with such policies and procedures for the pre-approval of audit and permitted non-audit services as the Committee may approve.

G. Require that the independent auditors annually provide a formal written statement affirming that they are independent, and require that the independent auditors otherwise comply with applicable requirements of the PCAOB regarding the independent auditors' communications with the Committee concerning independence, including the Rule 3526 requirements. The Committee shall be responsible for actively engaging in a dialogue with the independent auditors with respect to any disclosed relationships or services that may affect the objectivity and independence of the independent auditors and taking or recommending that the Board take action as appropriate to oversee the independence of the independent auditors.

H. Meet with the independent auditors and the Company's financial and accounting personnel to review the scope of the proposed audit for the current year and the audit procedures to be utilized, and at the conclusion of such audit, including any comments or recommendations of the independent auditors.

I. Review with the independent auditors and the Company's financial and accounting personnel the adequacy and effectiveness of the accounting and financial controls of the Company and elicit any recommendations for the improvement of such internal control procedures or particular areas where new or more detailed controls or procedures may be desirable. Particular emphasis should be given to the adequacy of such internal controls to expose any payments, transactions or procedures that might be deemed illegal or otherwise improper.

J. Discuss, or the Committee Chair will discuss, matters identified during the independent auditors' review of interim financial information with the independent auditors and management prior to the filing of each of the Company’s Forms 10-Q.

K. Review the financial statements contained in the Annual Report to Stockholders with management and the independent auditors to determine that the independent auditors are satisfied with the disclosure and content of the financial statements to be presented to the stockholders. Any changes in accounting principles should be reviewed.

L. Discuss with the independent auditors and the Company's financial and accounting personnel the independent auditors' judgments about the quality of the Company's accounting principles as applied in its financial reporting and significant judgments affecting the financial statements. The discussion should include such matters as the consistency of application of accounting policies and the clarity and completeness of the Company's accounting information contained in the financial statements and related disclosures.

M. Receive and review a report from the independent auditors discussing: (i) all critical accounting policies and practices in use by the Company; (ii) alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, the ramifications of the use of such alternative treatments (including relevant disclosure requirements) and the treatment preferred by the independent auditors; and (iii) other material written communications with management, such as any management letter, engagement letters and independence letters.

N. Periodically discuss with the independent auditors whether all material correcting adjustments identified by the independent auditors in accordance with generally accepted accounting principles and rules of the Securities and Exchange Commission are reflected in the Company's financial statements.

O. The Committee shall review and reassess the adequacy of this Charter on at least an annual basis and recommend any proposed changes to the Board for approval.  This Charter will be made available on the Company’s website at www.egov.com.

P. As required by the applicable regulations, provide a report in the annual proxy statement disclosing that the Committee has: (i) reviewed and discussed the audited financial statements with management, (ii) discussed with the independent auditors the matters relating to the audit required to be discussed under applicable auditing standards and the rules and standards of the PCAOB, as may be modified or supplemented, (iii) received the written disclosures and the letter from the independent auditors required by the applicable requirements of the PCAOB regarding the independent auditors' communications with the Committee concerning independence, as may be modified and supplemented, and has discussed with the independent auditors the independent auditors' independence and (iv) disclosed that based on the review and discussions described in (i) through (iii) above, the Committee recommended to the Board that the audited financial statements be included in the Company's Annual Report on Form 10-K.

Q. Review and discuss with the independent auditors any other matters required to be discussed with the independent auditors, or reports required to be provided by the independent auditors, pursuant to applicable auditing standards, the rules and standards of the PCAOB, the rules of the Securities and Exchange Commission, and the rules of the Nasdaq Stock Market.

R. Provide sufficient opportunity for the independent auditors to meet with the members of the Committee without members of management present. Among the items to be discussed in these meetings are the independent auditors' evaluation of the Company's financial and accounting personnel, and the cooperation that the independent auditors received during the course of the audit.

S. Establish procedures for (i) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.

T.  Annually discuss policies with management with respect to risk assessment and risk management including a discussion of: (i) guidelines and policies that govern the process by which the Company's Chief Executive Officer and management assess and manage the Company's exposure to risk, and (ii) the Company's risks related to financial matters, the financial statements and the financial reporting process and the steps the CFO and Company management has taken to monitor and control such exposures.

U. Review and approve the Company's decisions, if any, to enter into swaps, including security-based swaps, from time to time, which may include swaps entered into in reliance on the "end-user" exception from mandatory clearing and exchange trading requirements.  Such review and approval may occur annually on a general basis and does not need to occur on a swap-by-swap basis.

V. Oversee an investigation of any violation by a director or executive officer of the Company’s Code of Business Conduct and Ethics.

W. Oversee the Company’s Internal Audit Department.

X. Investigate any other matter brought to its attention that is within the scope of its duties.

     

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IV. Resources and Authority:


The Committee shall have the resources and authority appropriate to discharge its responsibilities, including the authority to engage outside auditors for special audits, reviews, and other procedures and to retain special counsel and other experts or consultants, as it determines necessary to carry out its duties.

The Company shall provide for appropriate funding, as determined by the Committee, for payment of: (i) compensation to any independent auditors engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the listed issuer; (ii) compensation to any advisers employed by the Committee; and (iii) ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.

The Committee may delegate any of its responsibilities to its Chairman and/or to such other members of the Audit Committee as the Chairman shall from time to time designate.  The Committee shall also carry out such other duties that may be delegated to it by the Board from time to time.

 

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V. Procedures and Administration:

A.  Meetings:  The Committee shall meet at such times as it deems necessary or appropriate, but not less than semiannually.

B.  Minutes:  The Committee shall maintain written minutes of each Committee meeting.  Such minutes shall be distributed to each member of the Committee and to the other members of the Board.

C.  Reports:  The Committee shall report to the Board concerning each meeting of the Committee and as otherwise requested by the Chair of the Board.

D.  Self-Evaluation:  The Committee shall evaluate its own performance at least annually. 


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