Financial Management – Page 2

Making the Most of the Year End

A necessary function of nonprofit organizations is fundraising. While grant proposals are a significant and valid source of raising funds, there are other things your organization can do to encourage donations. Today we will take a look at some other ways your nonprofit organization can raise funds to achieve your mission.

Fundraising Events

Whether it be an organized run, gala, auction, or dinner, gathering people together for the purpose of learning about and supporting your mission is a great way to raise funds. Hosting fundraising events is common throughout the nonprofit world. One of the greatest benefits is that people can get involved at almost any level. From a $25 entrance fee to a $2,500 donation, you can create ways for everyone to play. In addition to raising funds, events provide the opportunity to raise awareness. Through inviting speakers, sharing stories, and showing pictures or videos you can communicate the value of your mission to constituents and influencers. In addition, hosting events like run/walks or theme parties creates an opportunity to tell the public what you’re about and invite them to participate.

Annual Donations

At least once per year, nonprofits can simply ask people to donate in support of their cause. Most often, this is done through a direct mail campaign and the target audience is anyone who may be interested in supporting your organization. It is wise to send this out during the late fall in hopes of tapping into the year-end donations. Did you know that 25% of all donations are made in the month of December with 10% made the last three days of the year? December breeds generosity as well as tax benefits, take advantage of this to invite people to exercise their generosity by investing in your nonprofit.

Memberships

Most regular corporations have stockholders, however, because nonprofits do not issue stock they do not. An alternative to this is offering membership. A formal membership structure may grant certain rights, such as voting power, towards board members and decisions. Although additional paperwork and administration is necessary to support membership, this is another great way to raise funds for your organization. There are two options for membership.

Rolling Membership – this means that membership income is steady throughout the year as people will be paying their renewals as they expire. This requires someone to keep track of memberships and send out renewals accordingly. The alternative to this is:
Annual Memberships or Memberships that are renewed one time of the year. This has its advantages, as you are able to time your renewal to bring in donations at a set time of the year, which helps with cash flow. On the other hand – you may lose out on potential members and funds if you’re not on top of membership offerings throughout the other months of the year.

Planned Giving

Planned giving is the act of making a commitment to give a charitable organization a gift, over time or in the event of death, as part of the donor’s overall financial and estate planning. All too often, this opportunity to generate donations is overlooked or avoided by nonprofits. Understandably, it is a tricky subject to broach, however, it is important not to underestimate the power of legacy. People want to leave a legacy in an area that they are passionate about. Keep in mind – you are inviting people who care about your nonprofit to make a lasting investment, to keep pursuing your mission. This is not a forced act but an opportunity that can be accepted or declined, but you will never know if you do not ask.

At Beck & Company, Certified Public Accountants and Business Advisors, we are an accounting and consulting firm delivering specialized expertise, creative thinking, and unsurpassed service to ensure that our clients’ financial endeavors flourish. Specifically, we offer nonprofit services such as CFO, Controllership, and Accounting services. Contact us to see how we can help your organization flourish.

Is My Nonprofit Organization Susceptible to Fraud?

It is hard to believe that an organization dedicated to improving society and filled with well-meaning, hard-working people would be susceptible to fraud. However, even the most well-meaning nonprofits can find themselves in financial hot water.

All too often, when financial issues arise, there is a temptation to mask them. This can be particularly tempting for nonprofit managers. One reason for this is that federal law only requires nonprofits to report financial inconsistencies which are over $250,000, or five percent of the organization’s annual gross receipts.

Sometimes, by the time a nonprofit realizes their misappropriation of funds, they find themselves at risk for losing significant amounts of money should they choose to come clean. Here are two things to look for that could indicate you may be experiencing some financial irregularities.

1. Financial statements are difficult to obtain. Most healthy nonprofit organizations are financially transparent. Stakeholders and constituents should have unfettered access to financial numbers. In fact, certain documents should be available at all times for review such as:

• Bank Statements including all cash balances

• Accounts Payable reports showing money owed to vendors. You will want to ensure vendors are being paid in full and on-time. Any issue here could mean financial fraud.

• A report showing credit lines with the amounts borrowed.

• Accounts receivables reports.

• A list of fixed expenses.

2. Income and cash flow statements as well as balance sheets should be automatically sent to stakeholders on a monthly basis. It is important to read these reports and have an open line of communication should anything seem out of place.

One of the best tools you have is to be proactive in mitigating financial fraud risk. You can conduct a fraud risk assessment by creating a risk map and linking it to your internal controls. Ensure your internal controls are being followed, and test their functionality. Arm your staff with training so that they can become aware of things to look for that may be fraudulent activities.

Organizations with fewer employees oftentimes have less segregation of duties with fewer internal controls. Having a smaller staff often leads to closer relationships and trust, which can create a false sense of security. There are ways to protect a small organization to mitigate their risk. Creating a fraud prevention environment with the following tools is a great start.

1. Use an accounting software solution. Utilizing accounting software can mitigate fraud risk as it automates transactions, provides user security levels, and creates an audit trail and Internal Accounting Review.

2. Conduct employee background checks.

3. Ensure the senior leadership reviews the monthly bank statements. This provides a level of accountability as well as mitigating check tampering.

4. Look for missing or altered checks–anything signed by an unauthorized individual or other inconsistencies.

5. Payroll oversight. Centralize the payroll program in order to eliminate “ghost” employees, which could be fictitious persons on the payroll.

6. Ensure compliance to internal controls.

7. Offer fraud prevention training. Remember, by nature, fraud is hidden. There are no 100% solutions to avoiding fraud. Research has shown that one of the most important deterrents to fraud is “tone at the top.” Management’s stance on ethics has a direct effect on employee behavior. The first goal is to prevent fraud, and the second is to catch it as quickly as possible.

Beck and Company Certified Public Accountants and Business Advisors are here to help. We are passionate about helping nonprofits get their financial reporting in order so that they can reduce the risk of fraud. Learn more about all of the nonprofit services we offer in addition to auditing services. Contact us to lo let us know how we can help your organization with financial services, internal audits, and other services to keep your finances in check and to prevent fraud.

The Cure for Unhealthy Financial Reporting

Are you feeling like your financial management is ineffective and inaccurate? Do you need a CURE for “unhealthy” financial reporting practices and records? Look no further. We have just the financial management treatment you need to nurse your financial records and reports back to health. And, there is no better time to do this than now as you finish up the year 2014 and look to the new year of 2015. Having your financial reports in order now will help you with upcoming budgetary and company decisions that you will be making and will keep you on track to get a clean bill of health throughout all of 2015. This will also set you up for success in being prepared with reports at a moment’s notice upon request. Who doesn’t want to be healthy in the New Year?! We all do. Your business needs to be in a healthy place, too, and financial reports that are accurate and organized are vital lifelines in this health and are important tools and resources for constituents of your company or organization.

If you are in need of personalized help and attention in the area of financial reporting, Beck and Company’s Certified Public Accountants and Business Advisors are trained professionals who can help you reduce costs through business process optimization. This involves improving workflows and operational efficiencies that can ultimately have a positive impact on your bottom line. Learn more about our client accounting services here.

In addition to the personalized accounting services we offer, here are some general tips for what characterizes good and healthy financial reports and statements. As a general rule of thumb, keep in mind that the information contained within the reports should have the needs of the users of the reports in mind. Consider the audience when creating reports so the needed information is included and information that is not pertinent is not included. Not all audiences are created equal so not all reports should be created equal. Regardless, though, the reports must be correct, and more detailed information must be available upon request when more concise reports are shared. Just think of C.U.R.E., and you’ve got the cure you need when it comes to healthy financial reports!

C- Comparability

The information must be comparable to the financial information presented for other accounting periods so that users can identify trends in the performance and financial position of the reporting entity.

U- Understandability

The financial information must be readily understandable to users of the financial statements. This means that information must be clearly presented with additional supporting information supplied as needed to assist in clarification.

R- Relevance

The information must be relevant to the needs of the users, which is the case when the information influences the economic decisions of users. This may involve reporting particularly relevant information or information whose omission or misstatement could influence the economic decisions of users.

E- Error-free

The information must be reliable and therefore free of material error and bias while also not being misleading. Thus, the information should faithfully represent transactions and other events, reflect the underlying substance of events, and prudently represent estimates and uncertainties through proper disclosure.

In addition to the CURE above, there are many other characteristics of effective financial reports. These include showing context and keeping investors in mind, being compliant with rules and regulations, following the Disclosure Management Cycle, creating the reports in collaboration with others within a business team, etc. You can learn more here. Please contact us to learn more about how we can help you and your business to succeed in all areas including in the financial realm with your financial reporting practices and efficiency. Stay tuned next week for another cure to the financial record mismanagement blues!

Financial Management Necessitates Acting on Key Performance Indicators

Your business financial management will only be successful if you know your key performance indicator facts and act based on what they are telling you. Over the last few weeks, we have discussed the importance of having a business/financial plan for your company and how to use this as a tool for ongoing planning using rolling forecasts and fine-tuning. The key performance indicators are aspects that should be an integral part of both your business’ plan and ongoing planning processes.

The key performance indicators discussed below should be viewed as a reference or guide. Essentially, they are like a checklist that will ensure that both your plan and ongoing evaluation truly do consider and respond to the essential components that make up a business and its success. Beck and Company Certified Public Accountants and Business Advisors are experienced in helping customers with their accounting and business practice needs. Please contact us so we can assist you in these processes.

Key Performance Indicators (KPIs) to Consider and Evaluate:

A key performance indicator or KPI is a type of performance measurement that organizations use to evaluate overall finances or a particular business activity’s success. When you evaluate KPIs, it is essential that you compare them to both your general business plan AND to your prior year’s results to get the best overall picture of where you are and what direction you are likely heading in. Here are ten important KPIs to evaluate within your organization.

New Business Bookings Monthly Recurring Revenue (MRRs)- income from new customers that a company has reasonable assurance will occur at regular intervals in the future
Net Business Bookings (after attrition)- a combination of income resulting from existing and new customers
Recurring Revenue of Invoiced Customers– income from customers that a company has reasonable assurance will occur at regular intervals in the future
Gross Profit Margin– profitability ratio that measures how much of every dollar of revenue is left over after paying for the cost of goods sold
Operating Expenses– expenditures a business incurs to engage in any activities not directly related to production of goods and services
EBIDTA– Earnings Before Interest, Taxes, Depreciation and Amortization
Headcount– the total number of people employed in the organization
Capacity Utilization Rate or Operating Rate– a measure of the rate at which potential output levels are being met or used that shows efficiency versus slack in the business economy
Cash Balances and Debt Ratios
Accounts Receivable Days Sales Outstanding (DSO)- a calculation that estimates the average collection period to illustrate how well a company’s accounts receivable (AR) are being managed. An equation for this would be= AR/Revenue X # of days

In addition to these top ten KPIs, there are many others that are also important. When it comes to customers, consider these KPIs: the cost of customer acquisition, the average revenue/billings per customer, the attrition value and percentage of recurring revenue from customers, and customer survey results. With regards to the business and employees, these KPIs should be addressed as well: the revenue and cost per employee, the number of months it takes to break even on sales and marketing costs, the current ratio of assets versus liabilities, average selling prices, the return on investment for both sales and service personnel, and the break-even point in revenue.

If you are a part of a non-profit organization instead of a for-profit business, you may need more specific guidance with regards to your organization’s financial management. In addition to the topics we have discussed regarding these best practices for businesses that are still applicable to non-profits, you can find more specific information for non-profits effective financial practices and reports by visiting here.

Our goal is that the financial management best practice information and tips over the past three weeks have benefitted and assisted your company. For more assistance related to your specific business, Beck and Company CPAs offer free consultations to assist you with any accounting needs you may have. Please contact us for more information, and we look forward to the opportunity to assist you.

Financial Management Requires Continuous Planning and Fine-tuning

The fundamental aspects of business finances need to undergo continual planning and fine-tuning as a means of helping to make important business decisions and improvements. Last week, we took a look at business and financial plans. Once these plans have been created, they must be modified consistently. The easiest way to make the distinction is to think of the business “plan” as fixed and to envision the fine-tuning as an ongoing process of “planning” that should always relate back to the plan. In essence, the plan remains the same while planning continues on revolving around that plan. Beck and Company Certified Public Accountants and Business Advisors have vast experience helping clients with their financial business planning needs and would be pleased to offer a complimentary accounting consultation. Let’s take a closer look at how to go about planning and fine-tuning business finances.

Rolling Forecasts: Planning for what is ahead

The ongoing planning that results from your business and financial plan is essential to sound financial management. You must take constantly changing circumstances and situations into account. Your planning process evolves along with these changes. Rolling forecasts act as this sound financial roadmap. Essentially, these rolling forecasts create an ongoing cycle of planning, evaluating, and updating organization-wide operations such as finances. The goal is to have this process help you understand problems, challenges, and trends sooner. The predictions made in rolling forecasts allow you to make changes before predicted outcomes are actually observed that ultimately save your company money and time. In its simplest form, it is a more “live” version of a budget that is also simplified so it can be generated and applied much quicker than a traditional budget could.

A rolling forecast provides many benefits to an organization in terms of reaction time, alignment of operations, and timelines. Management can better focus on making decisions that truly matter and have far-reaching implications that propel a business toward its strategic goals and overall plan. If a rolling forecast is done correctly, it will provide a competitive advantage in a rapidly changing business climate.

Here are five core components that make up a rolling forecast:

Extends beyond the calendar/fiscal year or baseline set by the budget to be aligned to the actual business cycle regardless of its length
Updates on a regular and pre-determined basis to keep a consistent rhythm that can be planned for and accommodated. Keep in mind that the number of forecast periods is dictated by real business drivers such as business cycle, competitive forces, price sensitivity, vendor reliance, and technology adaptation.
Emphasizes key business drivers which are business decisions or influences that impact numerous areas and ideally link revenue and expense activities
Rapid forecast creation by only focusing on key decisions not translating all business decisions into financial terms. Ideally, a rolling forecast solution will be able to generate an organization-wide forecast focused on a specific outcome in less than one business day.
Blends actual performance along with the updated forecast by using the most recent actual data. The majority of effort should be spent on updating periods that were previously forecast and not on the new periods being added to the forecast because those are more variable and less controllable/predictable.

Fine-Tuning: What is working and what isn’t working?

Consider the following aspects that need to be continually fine-tuned no matter the type of business. In the process, assess the risks and then work to mitigate them.

-Required and Generated Cash

A few questions to ask yourselves: Are we burning cash? Are we generating cash?

-Revenue

Factors to consider: sources of revenue, predictability of revenue, other competition

-Profitability

Questions to reflect on: Are we profitable? How can we be more profitable? Have we prioritized correctly if our goal is profitability?

-Costs

Aspects worth assessing: Are we capital efficient? Have we prioritized?

The process of planning and using rolling forecasts in addition to fine-tuning essential business components can have a vast and positive impact on the way finances are managed within your organization. For more assistance with financial management, please contact us here at Beck and Company CPAs.

Financial Management Best Practices Start with a Business and Financial Plan

Business financial management starts with a plan. If “business” can be summarized as the prioritizing of limited resources, how you manage those resources can make or break your business. What, then, are the best practices when it comes to managing your business’ finances? It starts with a look at your company’s current reality and creating or reviewing your business and financial plan to be sure it is complete. In a sense, this process is aimed at creating a culture of financial management that is essential to business success. Beck and Company Certified Public Accountants and Business Advisors can help you with these financial plans. Feel free to contact us and request a free consultation.

Current Reality: How do you manage your business today?

A financial plan can only be truly accurate and applicable if you first determine how your business is currently managed. By knowing what gaps exist or what elements need more attention, you know which parts of a financial plan need the most attention. Consider the following questions and how many can be answered affirmatively for your business.

– Do you have a formal planning process?

– Do you know what the drivers are behind historical trending and forward looking plans?

– Do you know if resources are aligned with your revenue and profitability goals?

– Do you know which employees are more effective than others?

– Do you know which customers or sources of revenue are more profitable than others?

If you cannot answer yes to some of these questions, you’ll need to put your focus on those aspects initially when you make or add to your plan. Then, all you need to do is fine-tune the other aspects of your business that are already in place in your plan. Stay tuned next week for a deeper look at fine-tuning key aspects of your business’ finances.

Business Plan: An overview of what to include

Now that you know more about your current reality, you are ready to take a look at your existing plan or create a new one. If you have an existing one in place, be sure all essential components are included or add where necessary. A business plan should include the following: an executive summary of your company’s overall objective, mission statement, and keys to success. This should be followed by a company summary of ownership, history, and locations. Next, you’ll need a description of products and/or services that you offer. A market analysis summary of your target market, needs, trends, and growth in addition to industry and competitor analysis is another important part of this plan. You will also need a summary of strategy and implementation for pricing, promotion, distribution, and sales. Two other important elements of your business plan are a web plan summary including website marketing strategies and a management summary of the organizational structure and management teams. Finally, your business plan will need to include a financial plan. Let’s take a closer look at what this should include.

Financial Plan:

A financial plan is one of the most important elements of your overall business plan. All of the other elements of your overall plan that we just discussed should correlate to the finances. The plan creation or revision also encourages your business to be financially transparent and open. To learn more about the importance of financial transparency, visit here.

Within a financial plan, you’ll need to address important assumptions to ensure clarity and agreement. These should include timing (when to do your plan- calendar or fiscal year), prioritization of new initiatives, run rate versus new business mix, competition and cyclical variations and their impact, employee utilization rate, and fixed plus variable cost structure.

After the assumptions are laid out, then you’ll need to include other elements in your plan such as key financial indicators, break-even analysis, projections of profit and loss, projected cash flow, business ratios, and a long-term plan. These financial aspects combined with the business plan components comprise your overall plan.

If you are in need of support with your business and financial plan, please contact Beck and Company CPAs for a complimentary consultation.

Educating Your Board about Nonprofit Financials

As many nonprofits have discovered through experience, not all of your board members are going to understand your nonprofit financial reports and explanations. While many of your board members will come to you with substantial financial experience and understanding, some members of the board will not be as well-versed in reading nonprofit financial reports and understanding financial terms. As a leader in your nonprofit organization, it is your job to ensure that the board understands what is being presented. After all, without financial knowledge specific to nonprofits, your board has no way of understanding the financial implications of their strategic decisions. Arming them with the knowledge they need will not only improve your financial presentations, but it will also help your board make better decisions for the organization.

We’ve created a few strategies to help you educate your board on understanding your nonprofit’s financials. Keep the following in mind as you prepare your board for financial presentations:

Determine what your board needs to know. Don’t overwhelm your board members with useless information they don’t really need. Focus on the specifics related to the type of organization you’re running and instruct them on everything they need to know to uphold their fiduciary responsibilities.
Start with the basics. Once you’ve identified what your board needs to understand to be successful, it’s time to start educating them on the basics. Make sure all board members understand the purpose behind (and can read) the statement of financial position, statement of activities, and statement of cash flows. Your board will need to understand each of these statements, be able to link them together, and find the answers to their financial questions. Keep the format of these reports consistent so as not to confuse your board.
Make sure they understand accrual accounting. Your board members need to understand the basics of accrual accounting and be able to understand terms such as “deferred revenue” and “prepaid expense”. This may take some time to explain, but we promise it’s worth the effort in the end. It will save time and efficiency at meetings, as you won’t have to partake in lengthy discussions clearing up accounting questions and can focus your efforts on solving the real financial issues.
Use your financial presentations as a teaching experience. If you can, carve out 10 – 20 minutes to go over specific accounting items with your board members during the meeting. Create a set plan of topics you’d like to cover across the year and work them into your financial presentations and meetings. You’d be surprised by how much you can cover in a year.
Send board materials and preparatory items prior to the meeting. Don’t expect your board members to learn everything on the spot; give them time to review concepts before the meeting so you have more time for valuable discussion.
Use visuals in your presentations. As the saying goes, a picture speaks a thousand words. Demonstrate key financial concepts using graphs and charts. Present financial data in graph and chart form as well. This will not only help keep the board interested in your presentation, but it will also help them retain what they are learning.
Bring in an accountant or financial consultant. Have your accountant or financial consultant drop in periodically to clarify the concepts you have been teaching.
Make the information relatable. Find a way to make the information you are presenting relatable to your board members. For example, if one of your members is a corporate businessman, discuss how to calculate the return on investment (ROI) of a new program. If your financial information cannot be easily related to the people making the decisions, the decisions won’t be quality.

Not all of your board members will be financial experts, but you can help them understand the basics so they make effective decisions for the organization. Your board members have a fiduciary responsibility, and it’s important to help them remember that. If you could use some help explaining nonprofit accounting basics to your board members, we can help! Check out our nonprofit accounting services to see how we can help you.

Internal Controls for Businesses and Non-profits, Part 1

Businesses and non-profit organizations face challenges every day that threaten their business longevity and effectiveness. These threats can take a variety of forms, including competition in the industry, rising costs of goods, changes in economic conditions, and human resource challenges. While all of these challenges pose a significant threat to businesses and non-profits, the greatest challenge for many of today’s businesses takes the form of fraud.

Fraud occurs more than you think, and it often goes unnoticed until it’s too late. Fraud can come in a variety of forms, including check fraud, credit card fraud, and employee theft (the most common types including check tampering and billing schemes). Stealing inventory, claiming undue overtime, setting up payments to fictitious vendors, skimming cash, and embellishing an expense account are all fraudulent activities that can occur within a company or organization. These activities threaten the stability of the business and can result in significant financial loss. In fact, according to the Association of Fraud Examiners (ACFE), the typical business loses an average of 7% of revenues due to employee theft alone. For smaller businesses and organizations, the percentage rises to 38% with a median loss of $200,000.

In order to protect your assets, you need to have strong internal controls in place, and your employees need to be aware of your organization’s policies and procedures. Failure to communicate your security procedures and policies with your employees only serves to put your business or organization at risk. It does no good to have strong internal controls if your employees aren’t using them.

Consider the reasons you may want to create strong internal controls:

Internal controls can solve current business problems and help prevent fraud from occurring.
Businesses with strong internal controls in place have the potential to go public.
If you are working with a Sarbanes-Oxley (SOX) compliant customer, you may be required to show proof of strong internal controls.
Strong internal controls improve financial reporting accuracy and ensure assurance that your financial statements are correct.
Future investors, bankers, and accountants will want to see how you are protecting your financial assets.

Strong internal controls are essential no matter how small or large your company or organization. Just as you wouldn’t leave money lying out in the open for anyone to take, you shouldn’t leave your financial information open for all to see. Creating procedures and policies detailing employee responsibilities and tasks is a step in the right direction when it comes to safeguarding your assets. If you could use some help establishing internal controls in your business or non-profit organization, give us a call today. We offer a variety of client accounting services to help you with all of your financial reporting and management needs.

Stay tuned to our blog for Part 2 of our internal controls article series to learn how you can start implementing internal controls and discover top methods for strengthening your overall business and non-profit security.

The Top Internal Controls for Smaller 501(c)3 Organizations

Protecting your data, information, and financials should be your top priority as a 503 (c) organization. Raising funds and winning grants is not an easy process, and you should be doing everything you can to safeguard your funds and financial information. Misuse, fraud, theft, and embezzlement are common occurrences, and if you don’t have the proper policies and procedures in place to protect your financials, you could put your organization at great risk. Smaller 501(c)3 organizations in particular have a difficult time maintaining the proper controls to protect their organization. Because their staff is limited (some organizations have fewer than 3 staff members) and their time is precious, many smaller organizations have difficulty segregating duties and implementing a system of checks and balances. Even if they don’t have the staff to maintain the same internal controls as larger organizations, smaller organizations can implement a few key controls to ensure that their financials are protected.

We’ve created a list of the top internal controls small 501(c)3 organizations should implement in order to properly protect their funds and financial information. Keep the following in mind as you begin to create your financial policies and procedures:

First and foremost, make sure your entire staff is aware of the policies and procedures you have in place. Everyone should be expected to follow these policies; there should be no exceptions. Excluding even the top person can set a negative (and even unethical) tone among your staff and lead to your staff ignoring procedures and cutting corners.
Implement physical controls. Lock up your files, password-protect your computers, and always keep checks in locked drawers. Simple security measures with your physical assets can go a long way in protecting your organization.
Clearly define the roles and responsibilities of everyone in your organization. Roles and responsibilities need to be written down even in small organizations. Determine who is responsible for what and make sure every staff member is aware of their duties. Failure to do so can cause things to slip through the cracks and place your organization at risk.
Reconcile your bank statements. This may seem obvious, but it needs to be said. Reconciling your bank statements is crucial to protecting your financials. If you reconcile your bank statements regularly, embezzlement can’t – and won’t – go on for very long. We recommend someone other than the bookkeeper (or whomever handles the money) reconciles the bank account; however, some smaller 501(c)3 organizations do not have a bookkeeper or only have one person who does everything. In this case, we would recommend having a board member (or someone else in a similar role) receive and review the bank statements before handing it over to the staff.
Always have two people present when counting cash. Cash handling is extremely risky, and you need to implement strong policies and procedures for dealing with cash. Hold your staff accountable with all cash that flows through the organization.

While these internal controls cannot help your organization raise more funds or win more grants, they can ensure that you keep your hard-earned (or hard-won) money. If your 501(c)3 organization has any questions regarding setting internal controls or accounting in general, give us a call today. We offer a variety of services designed to help you run a successful and effective 501(c)3 organization.

How Setting Internal Controls Can Protect Your Nonprofit Financials

How are you protecting your nonprofit organization’s financials? Do you have measures set in place to protect your funds from outside theft or internal mismanagement? As we’ve previously discussed, setting internal controls can help you create more accurate and effective financial reports; however, the benefits of setting internal controls does not end there. Internal controls can help you maintain good standing with your grantors, as well as ensure that you are meeting the proper financial guidelines set forth by the government. While accounting software can certainly help your organization manage your funds appropriately, internal controls can safeguard your financials from embezzlement, inaccurate reporting, fraud, and unauthorized expenditures. When you establish policies and procedures to protect your organization’s assets, you are establishing rock solid accountability with your donors and grantors and ensuring that your funds will be available when you need them.

We’ve created a few tips designed to help you set effective internal controls for your nonprofit organization:

Have a set definition of the various roles within your organization. All of your employees, volunteers, officers, directors, and trustees should have a clear understanding of their roles and responsibilities within the organization. Make sure to communicate the expectations and limitations of their jobs with each prior to hiring. Failure to do so could put your organization at risk.
Create a personnel policy that is easily accessible to your staff. Keep written record of your organization’s personnel policy and be sure to include information on vacation and sick leave, grievance procedures, evaluations, compensation, health insurance and other benefits, and your code of ethics. Provide your staff with a copy of this policy upon hiring and communicate important changes to the policy as they occur.
Establish procedures to monitor your organization’s funds. If your organization does not have an accounting procedures and policies manual, now is the time to create one. This manual should detail your organization’s financial controls and be reviewed by all directors and officers, trustees, employees, and volunteers. Your manual should at least include the following controls:
- Implement general organization-wide internal controls: This includes the preparation of your annual income and expense budget and quarterly reports comparing the actual receipts and expenditures to your budget. Make sure these reports are fully explanatory and address any and all time variances.
- Segregate financial responsibilities: Segregating financial duties and responsibilities is crucial to ensuring your financial integrity. Have a system of checks and balances in place, and make sure you have multiple people assigned to financial accounting, reporting and cash handling. Letting one person do it all is a recipe for disaster.
- Establish general IT controls: You will need to establish a specific process for accessing, inputting, and altering electronic data and information within your organization.
- Accounts Payable and Purchasing: Segregating the duties within the Accounts Payable and Purchasing department is important. Make sure you have multiple people handling the requests, verification, authorization, and recording of all expenditures (including the payment of invoices, petty cash and other expenditures).

Establishing internal controls now can protect your nonprofit financials in the future. Don’t make the mistake of doing nothing. Establish policies and procedures to ensure the financial integrity of your organization. If you’d like guidance on setting internal controls or simply need a review of your organization’s cash flow, contact us today. We offer a variety of nonprofit services designed to ensure that your organization is functioning as effectively as possible.