STATEMENT OF POLICY AND PURPOSE

The Audit Committee (the "Committee") shall provide assistance to the Board of Directors of NIC Inc. (the "Company") in fulfilling its oversight of (i) the integrity of the Company's financial statements, (ii) the Company's compliance with legal and regulatory requirements, (iii) the independent public accountants' qualifications and independence, and (iv) the performance of the independent public accountants; and to prepare the Report of the Audit Committee to be included in the Company's Proxy Statement. In so doing, it is the responsibility of the Committee to maintain free and open means of communication among the Board, the independent public accountants and the financial management of Company.

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 shareholders 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. 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 public accountants are responsible for planning and carrying out a proper audit and reviews, including reviews of the Company'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 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 as required by other provisions of this charter. 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).

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STRUCTURE AND ORGANIZATION

1. Number. The Committee shall consist of at least three members of the Board of Directors.

2. Independence. Except as otherwise permitted by the applicable rules of the Nasdaq Stock Market, Inc. and Section 301 of the Sarbanes-Oxley Act of 2002 (the "Act"), each member of the Committee shall be "independent" as defined by such rules and Act. In addition, no member of the Committee shall have participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years.

3. Financial Literacy. Each member of the Committee shall be able to read and understand fundamental financial statements, including the Company's balance sheet, income statement, changes in shareholders' equity statement and cash flow statement and shall otherwise be financially literate, as such qualification is interpreted by the Company's Board of Directors in its business judgment. At least one member of the Committee must have past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual's financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. Unless otherwise determined by the Board of Directors (in which case disclosure of such determination shall be made in the Company's SEC periodic reports), at least one member of the Committee shall be an "audit committee financial expert" as defined by the Act and applicable SEC rules.

4. Chair. Unless the Board of Directors elects a Chair of the Committee, the Committee shall elect a Chair by majority vote.

5. Compensation. The compensation of the Committee members shall be as determined by the Board of Directors. No member of the Committee may receive any compensation from the Company other than director's fees, which may be payable in cash or securities of the Company, at the discretion of the Board of Directors. The Company shall also reimburse members of the Committee for any reasonable out-of-pocket costs incurred while performing their duties and responsibilities as members of the Committee.

6. Selection and Removal. Members of the Committee shall be appointed by the Board of Directors. Unless otherwise determined by the Board, no member of the Committee may serve on the Committee of more than two other public companies. The Board of Directors may remove members from the Committee with or without cause.

7. Meetings. The Committee shall meet at least four times annually or more frequently as it deems necessary to perform its responsibilities. In addition, the Committee or its Chair shall communicate with management and the independent public accountant quarterly to review the Company's financial statements and significant findings based upon the independent public accountant's limited review procedures. The Committee shall submit the minutes of all meetings of the Committee to, or discuss the matters discussed at each committee meeting with, the Board.

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RESPONSIBILITIES

1. General. To fulfill its responsibilities the Committee shall:

o                Review and discuss with management and independent public accountant the Company's annual and quarterly financial statements, including the Company's disclosures under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the matters about which Statement on Auditing Standards No. 61 requires discussion.

o                Oversee the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company.

o                Review and discuss generally with management the types of financial information and earnings guidance to be provided to analysts and rating agencies and to be disclosed in the Company's earnings press releases (including any use of "pro forma" or "adjusted" non-GAAP information).

o                Consider annually whether it will recommend to the Board of Directors that the Company's audited financial statements be included in the Company's Annual Report on Form 10-K.

o                The Committee shall prepare for inclusion where necessary in a proxy or information statement of the Company relating to an annual meeting of security holders at which directors are to be elected (or special meeting or written consents in lieu of such meeting), the report described in Item 306 of Regulation S-K.

o                The Committee shall direct the independent public accountant to use its best efforts to perform all reviews of interim financial information prior to disclosure by the Company of such information and to discuss promptly with the Committee, Chief Financial Officer and Chief Accounting Officer any matters identified in connection with the auditor's review of interim financial information which are required to be discussed by Statement on Auditing Standards Nos. 61, 90 and 100. The Committee shall direct management to advise the Committee in the event that the Company proposed to disclose interim financial information prior to completion of the independent public accountant's review of interim financial information.

2. Oversight of Independent Auditor

o                The Committee shall be directly responsible for appointing, evaluating and, when necessary, terminating the independent public accountant. The Committee may, in its discretion, seek shareholder ratification of the independent public accountant it appoints.

o                The Committee shall be directly responsible for setting the compensation of the independent public accountant. The Committee is empowered, without further action by the Board of Directors, to cause the Company to pay the compensation of the independent public accountant established by the Committee.

o                The Committee shall preapprove all auditing services and non-audit services (other than de minimus non-audit services as defined by the Act) to be provided to the Company by the independent public accountant. The Committee shall cause the Company to disclose in its SEC periodic reports the approval by the Committee of any non-audit services to be performed by the independent public accountant.

o                The Committee shall annually assess the independent public accountant's independence. The Committee shall require that the independent public accountants annually provide a formal written statement delineating all relationships between the independent public accountants and the Company, consistent with Independence Standards Board (ISB) Standard No. 1. The Committee shall be responsible for actively engaging in a dialogue with the independent public accountants and recommending action to the Board as appropriate with respect to any disclosed relationships or services that may affect the objectivity and independence of the independent public accountants.

o                The Committee shall meet with the independent public accountants and financial management of the Company 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 public accountants.

o                The Committee shall annually obtain and review a report by the independent public accountant describing:
(a) the firm's internal quality control procedures; and
(b) any material issues raised by the most recent internal quality control review, or peer review, of the firm, or by an inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues.

o                The independent public accountant shall report directly to the Committee and the Committee shall be directly responsible for oversight of the work of the independent public accountant, including resolution of disagreements between Company management and the independent public accountant regarding financial reports. The Committee shall as necessary obtain and review the reports required to be made by the independent public accountant pursuant to paragraph (k) of Section 10A of the Securities Exchange Act of 1934 regarding:
(a) critical accounting policies and practices;
(b) alternative treatments of financial information within generally accepted accounting principles that have been discussed with Company management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor; and
(c) other material written communications between the independent public accountant and Company management, such as any management letter or schedule of unadjusted differences.

o                The Committee shall review with the independent public accountants any significant matters regarding internal controls over financial reporting that have come to their attention during the conduct of their audit. In addition, the Committee shall review with the independent public accountants 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.

o                The Committee shall review the competence of the key partners and managers of the accounting firm that is responsible for the audit on an annual basis.

o                The Committee shall discuss with the independent public accountants and the Company's financial management the public accountants' 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 polices and the clarity and completeness of the Company's accounting information contained in the financial statements and related disclosures.

o                The Committee shall provide sufficient opportunity for the independent public accountants 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 public accountants' evaluation of the Company's financial and accounting personnel, and the cooperation that the independent public accountants received during the course of the audit.

3. Internal Controls and Procedures

o                The Committee shall coordinate the Board of Director's oversight of the Company's internal accounting controls, the Company's disclosure controls and procedures and the Company's code of business conduct and ethics. The Committee shall receive and review the reports of the CEO and CFO required by Section 302 of the Sarbanes-Oxley Act and Rule 13a-14 of the Exchange Act (i.e., the Certification of Disclosure in Annual and Quarterly Results).

o                The Committee shall discuss the Company's policies with respect to risk assessment and risk management, including guidelines and policies to govern the process by which the Company's exposure to risk is handled.

o                The Committee shall establish policies regarding the hiring of employees or former employees of the Company's independent public accountant.

o                The Committee shall establish procedures for (a) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; and (b) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.

4. Other Responsibilities

o                The Committee shall review and preapprove all transactions between the Company and any officer, director or employee, or affiliate thereof, of the Company, or any other transaction required to be disclosed pursuant to Item 404 of SEC Regulation S-K.

o                The Committee shall annually review this Charter and recommend any proposed changes to the Board of Directors. The Charter will be published at least every three years in accordance with SEC regulations.

o                The Committee shall regularly update the Board of Directors regarding the Company's compliance with financial policies and procedures, the performance of the independent public accountants, and the independence of the independent public accountants.

o                The Committee may form and delegate authority to one or more subcommittees (including a subcommittee consisting of a single member), as it deems appropriate from time to time under the circumstances. Any decision of a subcommittee to preapprove audit or non-audit services shall be presented to the full Committee at its next scheduled meeting.

o                The Committee shall annually direct the Company to prepare and provide to Nasdaq such written confirmations regarding the membership and operation of the Committee as Nasdaq rules require.

o                The Committee shall have the authority to engage independent legal, accounting and other advisors as it deems necessary to carry out its responsibilities. These independent advisors may be the regular advisors to the Company. The Committee is empowered, without further action by the Board of Directors, to cause the Company to pay the compensation of such advisors as established by the Committee.

o                The Committee shall have the authority to conduct or authorize investigations into any matters within the scope of its responsibilities as it shall deem appropriate, including the authority to request any officer, employee or advisor of the Company to meet with the Committee or any advisors engaged by the Committee.

o                The Committee shall annually evaluate its own performance.

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