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Audit Committee Charter

BLUEKNIGHT ENERGY PARTNERS G.P., L.L.C.

AUDIT COMMITTEE CHARTER

Revised: March 9, 2010

I. Composition of the Audit Committee

The Audit Committee of the Board of Directors of Blueknight Energy Partners G.P., L.L.C. (together with its affiliates and subsidiaries, the “Company”) shall be appointed by the Board of Directors and comprised of at least three members of the Board of Directors. None of the members of the Audit Committee shall be an officer or employee of the Company or its subsidiaries, nor have any relationship that, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Each member of the Audit Committee shall otherwise satisfy the applicable independence, expertise, experience and financial literacy requirements under the rules of The Nasdaq Stock Market LLC (“Nasdaq”) (or any other exchange upon which Blueknight Energy Partners, L.P.’s securities are traded, if applicable), the Securities Exchange Act of 1934 and the rules and regulations of the Securities and Exchange Commission (“SEC”), as such requirements are interpreted by the Board of Directors in its business judgment, and all applicable federal laws. At least one member of the Audit Committee must have past employment experience in finance or accounting, requisite professional certification in accounting or any other comparable experience or background that results in the member’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. At least one member of the Audit Committee shall be a person who the Board of Directors determines is an “audit committee financial expert” as defined by the SEC. Unless otherwise determined by the Board of Directors, no member of the Audit Committee shall simultaneously serve on the audit committees of more than two other public companies. Members of the Audit Committee shall receive no compensation other than payment for board or committee service including committee chairmanship fees.

II. Purposes of the Audit Committee

The purposes of the Audit Committee are to assist the Board of Directors in overseeing:

  1. A. the integrity of the financial statements, internal accounting, financial controls, disclosure controls and financial reporting processes of Blueknight Energy Partners, L.P. and its subsidiaries (collectively, the “Partnership”);
  2. B. the independent auditor’s qualifications and independence;
  3. C. the Partnership’s compliance with legal and regulatory requirements; and
  4. D. the performance of the independent auditors and the Partnership’s internal audit function.

The function of the Audit Committee is oversight. The management of the Company is responsible for the preparation, presentation and integrity of the Partnership’s financial statements. Management is responsible for maintaining appropriate accounting and financial reporting principles and policies 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 of the Partnership’s annual financial statements, reviews of the Partnership’s quarterly financial statements prior to the filing of each quarterly report on Form 10-Q, and other procedures. In fulfilling their responsibilities hereunder, it is recognized that members of the Audit Committee are not full-time employees of the Company or the Partnership. As such, it is not the duty or responsibility of the Audit Committee or its members to conduct “field work” or other types of auditing or accounting reviews or procedures, and each member of the Audit Committee shall be entitled to rely on (i) the integrity of those persons and organizations within and outside the Company from which it receives information, (ii) the accuracy of the financial and other information provided to the Audit Committee by such persons or organizations absent actual knowledge to the contrary (which shall be promptly reported to the Board of Directors) and (iii) representations made by management as to any information technology, internal audit function and other non-audit services provided by the auditors to the Partnership.

III. Meetings of the Audit Committee

The Audit Committee shall meet as often as it determines, but not less frequently than quarterly, to discuss with management the Partnership’s annual audited financial statements and quarterly financial statements. The chairman of the Audit Committee shall be designated by the Board of Directors, or if no such delegation is made, shall be selected by the affirmative vote of the majority of the Audit Committee members. The Audit Committee should meet separately at least quarterly with management, the independent auditors and the internal auditors of the Partnership, and in executive session as a committee. The Audit Committee may request on an unrestricted basis any officer or employee of the Company or the Partnership’s outside counsel or independent auditors to attend a meeting of the Audit Committee or to meet with any members of, or consultants to, the Audit Committee. Members of the Audit Committee may participate in a meeting of the Audit Committee by means of conference call or similar communications equipment by means of which all persons participating in the meeting can hear each other. The majority of the members of the Audit Committee shall constitute a quorum. The Audit Committee may also act by unanimous written consent in lieu of a meeting. The chairman may represent the Committee in preliminary reviews of 10-Q’s and other matters, including the approvals required between Audit Committee meeting dates, as agreed by the Committee. Any action taken by the chairman pursuant to the preceding sentence shall be ratified by the full Audit Committee at the next Audit Committee meeting. The Audit Committee shall report its actions and any recommendations to the Board of Directors after each meeting of the Audit Committee, directly or though the chairman.

IV. Selection of Independent Auditors

The Audit Committee has the sole authority in the selection, retention and, when appropriate, replacement of the independent auditors of the Partnership and in the determination and pre-approval of audit engagement fees and non-audit engagements and fees. The independent auditors for the Partnership are ultimately accountable to the Audit Committee, as opposed to management of the Company. The independent auditors shall report directly to the Audit Committee.

V. Duties and Powers of the Audit Committee

To carry out its purposes, and without limiting the generality of the preceding provisions, the Audit Committee shall have the following duties and powers to the extent it deems necessary or appropriate:

  1. A. with respect to the independent auditors,
    1. 1. to appoint, determine funding for, and oversee the outside auditors (including resolving disagreements between management and the outside auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or related work;
    2. 2. to require that the outside auditors prepare and deliver annually a formal written statement delineating all relationships between the outside auditors and the Partnership (“Statement as to Independence”), consistent with Independence, Standards Board Standards 1 (it being understood that the outside auditors are responsible for the accuracy and completeness of the Statement as to Independence);
    3. 3. to pre-approve the independent auditors’ provision of (a) all audit, review and attest engagements required under the securities laws; and (b) all permitted non-audit services to the Partnership, and to consider the effect on the independence of the independent auditors of any such services (it being understood that the Audit Committee will rely on the accuracy of the information provided by the independent auditors as to the services provided and the fees paid and will rely on the representations of management in connection with such consideration);
    4. 4. to review a formal written statement, received from the outside auditors annually, of the fees billed for each of the following categories of services rendered by the outside auditors:
      1. a. the audit of the Partnership’s annual financial statements for the most recent fiscal year and the reviews of the financial statements included in the Partnership’s Quarterly Reports on Form 10-Q for that fiscal year;
      2. b. tax services for the most recent fiscal year, in the aggregate and by each service; and
      3. c. all other services rendered by the outside auditors for the most recent fiscal year, in the aggregate and by each service;
    5. 5. to instruct the independent auditors that the independent auditors are ultimately responsible to, and shall report directly to, the Audit Committee;
    6. 6. to assess the independent auditor’s qualifications and performance and the qualifications and performance of the lead partner of the independent auditor, including the opinion of management and the Internal Auditing and Compliance Director (if applicable). Audit firm rotation (including discussion of the qualifications of other major accounting firms) should be discussed. Regular rotation of the audit partners, as required by law, should be confirmed. The results of the process set forth in the two preceding sentences should be reported to the entire Board of Directors;
    7. 7. to receive in its private meetings the opinion of the independent auditors on their evaluation of the quality of accounting principles used and the reasonableness of significant judgments made by management as it falls within the scope of their duties, and discuss any problems or difficulties that were encountered during the audit and any significant disagreements with management, including any waived audit adjustments;
    8. 8. at least annually, to receive a report by the independent auditors describing:
      1. a. the firm’s internal quality-control procedure;
      2. b. any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried on by the firm, and any steps taken to deal with any such issues; and
      3. c. all relationships between the independent auditors and the Partnership in order to assess the independent auditors’ independence;
    9. 9. to set policies for the Company’s hiring of employees or former employees of the independent auditors taking into account if they were engaged on the Partnership’s account; and
    10. 10. to obtain immediate notification of any matter referred to the national office of the independent auditors and receive a quarterly report on matters discussed by the independent auditors with its national office during the quarter regarding the Partnership.
  2. B. with respect to financial reporting processes, principles and policies and internal controls and procedures,
    1. 1. to advise management and the independent auditors that they are expected to provide to the Audit Committee a timely analysis of significant financial reporting issues and practices;
    2. 2. to discuss all related party transactions;
    3. 3. to discuss any reports or communications (and management’s responses thereto) submitted to the Audit Committee by the independent auditors required by or referred to in AICPA SAS 61, as may be modified or supplemented, and discuss the management letter provided by the independent auditor and the Partnership’s response to that letter;
    4. 4. to inquire about significant business risks and exposure, if any, and the steps taken to monitor and minimize such risks, and discuss the Partnership’s policies and guidelines concerning risk assessment and risk management;
    5. 5. prior to approving the filing of the Partnership’s Form 10-K or Form 10-Q and related earnings releases, to meet with management and the independent auditors in order to:
      1. a. discuss the results of the annual audit and timely quarterly reviews by the independent auditors as well as disclosures made in management’s discussion and analysis of financial condition and results of operations in the Partnership’s Form 10-K or Form 10-Q, as the case may be, and review the form of opinion the independent auditors propose to render to the Board of Directors and the limited partners of the Partnership;
      2. b. discuss the development, selection and disclosure of critical accounting estimates and critical accounting policies, and any significant changes to the Partnership’s auditing and accounting principles, policies, controls, procedures and practices proposed or contemplated by the independent auditors or management;
      3. c. discuss alternative accounting treatments that were discussed with management (including their ramifications and the independent auditor’s preferred treatment);
      4. d. review the effect of regulatory and accounting initiatives as well as off-balance sheet structures on the Partnership’s financial statements;
      5. e. discuss other written communications between the independent auditor and management;
      6. f. discuss significant financial reporting issues and judgments made in connection with the preparation of the Partnership’s financial statements including any significant changes in the selection or application of accounting principals, any issues concerning the adequacy of the Partnership’s internal controls and any special audit steps adopted in light of material control deficiencies;
      7. g. review analyses prepared by management and/or the independent auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the Partnership’s financial statements, including analyses of the effects of alternative methods of generally accepted accounting principles on the financial statements;
      8. h. discuss the scope of and plan for the Partnership’s annual audit;
      9. i. discuss any other significant matters arising from any audit, report or communication, whether by management or the independent auditors, relating to the Partnership’s financial statements, accounting, internal controls or audit matters;
      10. j. review disclosures made to the Audit Committee by the Company’s CEO and CFO, during their certification process for the Partnership’s 10-K and Form 10-Q, about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Partnership’s internal controls, and discuss with the CEO and/or CFO the results of the Partnership’s disclosure process;
      11. k. obtain from the independent auditors assurance that the audit was conducted in a manner consistent with Section 10A of the Securities Exchange Act of 1934, as amended, which sets forth certain procedures to be followed in any audit of financial statements required under the Securities Exchange Act of 1934;
      12. l. discuss with the Partnership’s legal counsel, including outside counsel as appropriate, any significant legal matters that may have a material effect on the financial statements, the Partnership’s compliance policies, including material notices to or inquiries received from governmental agencies;
      13. m. review the significant reports to management prepared by the Internal Auditing and Compliance Director and management’s responses;
      14. n. review the activities, organizational structure, qualifications, responsibilities, budget and staffing (in each case, with respect to the Company and the Partnership only) of the internal auditors; and
      15. o. meet separately with the Partnership’s internal auditors to review the function, responsibility, qualifications, internal audit plan, SOX 404 management and cooperation of management with the internal audit function.
  3. C. with respect to any concerns submitted by employees or others pursuant to the Company’s Code of Business Conduct and Ethics or otherwise regarding accounting, internal accounting controls or auditing matters,
    1. 1. to establish procedures for the receipt, retention, investigation and treatment of complaints received by the Company or the Partnership and to have full and independent access to such; and
    2. 2. to ensure the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
      1. D. with respect to reporting and recommendations,
        1. 1. to review this Audit Committee Charter at least annually and recommend any changes to the full Board of Directors for approval;
        2. 2. to discuss with the Board of Directors the Partnership’s policies and procedures regarding compliance with applicable laws and regulations and with the Company’s Code of Business Conduct and Ethics;
        3. 3. to prepare any report or other disclosures, including any recommendation of the Audit Committee, required by the rules of the SEC, including the Audit Committee report as required by the SEC to be included in the Partnership’s proxy statement for the annual meeting (or in the Partnership’s Annual Report on Form 10-K);
        4. 4. to report its activities to the full Board of Directors on a regular basis and to make such recommendations with respect to the above and other matters as the Audit Committee may deem necessary and appropriate, including recommending to the Board of Directors whether the audited financial statements should be included in the Partnership’s Form 10-K;
        5. 5. to discuss with management the general types of information to be disclosed, and the general types of presentations to be made, in the Partnership’s earnings press releases, including the use of “non-GAAP financial measures,” supplemental financial information and earnings guidance provided to analysts and rating agencies;
        6. 6. to meet periodically with management, the Internal Auditing and Compliance Director and the independent auditors in separate executive sessions; and
        7. 7. to review annually the Audit Committee’s own performance and the roles and responsibilities of the Audit Committee, seeking input from management, the independent auditors and the Board of Directors.
      2. E. with respect to the foregoing, to perform any other activities consistent with this Audit Committee Charter, the Company’s and the Partnership’s governing documents, the rules of Nasdaq (or any other exchange upon which Bluknight Energy Partners, L.P.’s securities are traded, if applicable) and governing law as the Audit Committee or the Board of Directors deems necessary or appropriate.

      VI. Resources and Authority of the Audit Committee

      The Audit Committee shall have the resources and authority appropriate to discharge its responsibilities, including the authority to engage independent auditors for special audits, reviews, investigations and other procedures and to retain its own special legal counsel and other experts or consultants as it deems necessary or appropriate to assist in the full performance of its functions. The Audit Committee may request any officer or employee of the Company or the Partnership’s outside counsel or independent auditors to attend a meeting of the Audit Committee or to meet with any members of, or advisors to, the Audit Committee. The Company shall provide for appropriate funding, as determined by the Audit Committee, for payment of compensation to the independent auditors for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Partnership, compensation to any advisors employed by the Audit Committee, and ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties. The Audit Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Company.