You hear it time and time again, from an auditor, about implementing internal controls in your organization. They aren’t guaranteed to prevent fraud but they will minimize any given opportunity for fraudulent activity to occur and protect the assets of the organization. Sometimes it’s hard to know where to even start, so here’s a list of our top ten internal controls to provide you with some guidance for creating them in your organization. If you already have them in place take a look at the list anyway and consider if there are any your organization may be missing.
- Accessibility to cash. Who has access and who has the authority to spend? There should be controls in place where purchases are being monitored and approved by an executive team member or a board member.
- Bank reconciliations. Make sure these are done by someone other than the person who is making deposits and withdrawal. Also, make sure the reconciliations are done on a monthly basis so that suspicious activity can be caught right away.
- Check signers. The person entering the bills and preparing the checks should not the person responsible for signing the checks. You could require two signatures on checks over a certain threshold. Likewise, make sure pre-numbered checks are used, as well as, a check log.
- Payroll. It’s not always possible to have someone not included on the payroll involved in the process, unless you outsource the function. Make sure an executive team member is reviewing and signing off on payroll each time.
- Separation of Duties. In small nonprofits the separation of duties can be tough because almost everyone is expected to pitch in and wear many hats. It’s very important to implement separation of duties when it comes to authorizing spending, recording expenses, and receiving checks. This is where NFP Partners can step in to provide that review in a case where the organization is too small to do so themselves.
- Storage of money. Who receives the donations that are given and where are they stored before they’re deposited? It is imperative to keep the deposits locked up with no one, other than the finance team, having access. The checks should be stamped and recorded upon receiving them in the mail from someone other than the person in charge of making deposits.
- Financial Reporting. It’s also imperative to report the financial status to a Board of Directors periodically. There are many different reports that can be used but at least having a report to show the cash position and another showing budget-to-actuals is a good start.
- General Ledger posting. Have someone, other than the person entering journal entries and other transactions, review before they are posted.
- Accounting Policy Manual. Have a policies and procedures document in place that list all the requirements and expectations of employees. Have employees sign off, acknowledging their understanding of what is expected of them within your organization.
- Physical controls. Make sure everyone has their own login to computers, bank accounts, accounting software, etc. This also includes limiting access to checks and placing cash in a locked location.
Nonprofit Accounting and Finance Consultant