Tag: nonprofits

Internal Control Best Practices for Nonprofits

Internal controls are the accounting and financial business processes and procedures that help to protect your organization’s assets. Regardless of the size or mission of a nonprofit, it is necessary to establish policies and procedures that prevent misuse and misappropriation of assets. These internal controls will ensure that all staff or volunteers, who have access to spending or collecting monies, understand their fiduciary responsibilities, all assets are properly managed, and the primary purposes of the nonprofit are carried out. When these criterion are not met, it results in a breach of fiduciary duty and financial liabilities.

The most effective procedures are those that have the greatest segregation of duties. This is the concept of having more than one person required to complete a task. The separation by sharing of more than one individual in one single task is an internal control intended to prevent fraud and errors. The more people involved in the process, the less likely it is that an error will occur. For example, the person who writes checks should not be the person signing them. The person who orders the service or product should approve the invoice. The person with budget responsibility should also approve the expenditure and code the invoice.

Typically, internal controls are written policies that detail agreed-upon procedures that the nonprofit will adhere to, as well as outlining who the responsible parties are. The goal of internal controls is to create business practices that serve as “checks and balances” on staff or outside vendors in order to reduce the risk of misappropriation of funds.

The following are examples of some basic internal controls:

  • Requiring two signatures on a check.
  • Establishing safety protocol ensuring all doors are locked when no one is monitoring the entrance.
  • Preapproving spending, as a prerequisite to guaranteed reimbursements.
  • Requiring multiple persons to be present when collecting and counting cash donations.
  • Regularly reviewing vendors who are receiving money from the nonprofit for services or supplies.
  • Ensuring that the same person isn’t authorized to write and sign a check.
  • When opening mail, endorsing or stamping checks “For Deposit Only,” listing checks on a log before turning them over to the person responsible for depositing receipts, and periodically reconciling the incoming check log against deposits.
  • Requiring that cash be stored in a locked drawer or safe.
  • Requiring background checks for employees or volunteers who handle money.

Another facet to consider is the actions of executive staff and leadership to adhere to internal controls. Leading by example is the best way to ensure compliance of rules by the rest of your staff and volunteers. Additionally, acknowledge that these controls are being implemented as a measure to protect the staff and organization and not due to mistrust. If you are wondering where to begin establishing internal controls for your nonprofit, a good place to start is with:

  • Any person who has access to your bank accounts or
  • Any person with permission to spend money on your organization’s behalf.

Without establishing these procedures, your nonprofit is vulnerable to misuse and misappropriation of assets. At Beck and 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.

Serving small and mid-sized organizations and individuals, we provide audit, tax, accounting, and consulting service that address all aspects of your business with one goal in mind – exceeding your expectations. We are able to do this by drawing on our combined business backgrounds and experience in public accounting to help you in virtually any area of your business. Contact us for more information on our accounting and consulting services that can help you.

Financial Checklist for Non-profit Organizations

Non-profit organizations have a duty to be financially responsible and transparent for their board, themselves, their stake holders, and the government. This is no easy task, but a little organization can go a long way in helping non-profits to have success with regards to their finances and financial reports. This week’s focus is on keeping all of the necessary tasks organized and methodical, but you can visit here to learn more general information about what makes up an effective financial report to get you started.

It is easiest to stay current on needed accounting tasks by splitting them into what needs to be done more and less frequently. A checklist can help guide your organization in knowing what tasks need to be done and when to keep financial information up-to-date and ready for needed submissions to the government and people involved in the organization. Beck and Company Certified Public Accountants and Business Advisors can assist you with this and with your ongoing nonprofit and accounting needs.

Daily and Weekly Reminders to Keep at the Forefront

  • Each day’s tasks and meetings are established and prioritized (important ones are done first and others are scheduled around them).
  • The organization’s goals and mission should be reflected in and aligned to the work done.

Monthly Financial Checklist- Focus on the Budget and Collaboration

  • Review and compare budget projections and actual results: This will help you be sure that your revenue is sufficient to take care of expenses and will clarify how last month’s financial activity will impact future months.
  • Make adjustments based on these results: Your review and comparison should lead you to make immediate decisions about future actions based on your data.
  • Trim the budget’s fat: Analyze each line item to cut unnecessary or underutilized expenses.
  • Analyze costs as a team: Meet together as a budget task force to make decisions regarding variable costs to either remove them completely or determine if they should become fixed costs. Focus on budget efficiency without compromising the quality of your organization.
  • Submit grant proposals: Be aggressive in seeking more funding not only to sustain your organization but also to expand it.
  • Collaborate: Look for businesses and other non-profits to form partnerships with. Businesses with shared interests may support your cause, and other non-profits can be a great source of shared networking and fundraising efforts.

Quarterly Checklist- Focus on Important Board and Government Accounting Requirements

  • Report payroll taxes to the IRS: Submit the required Form 941 which is the employer’s quarterly federal tax return.
  • Prepare financial statements for the board: Knowing the current financial status for future planning and to fix potential finance problems is essential.
  • Submit financial status reports and progress reports for government grants and contracts: The government expects to know the current state of expenditures and what has been accomplished versus what was expected to be accomplished.
  • Meet with the board: It is a federal requirement to meet with the board of directors at least four times per year.

 Annual Checklist

  • Submit Form 990: This annual information report should be submitted to the IRS to report on financial activities, sources of income, and spending.
  • Release payroll reports: The Social Security Administration, IRS, and the employees need to know this information. This could include Form 941, W-2s, W-3s, and 1099s.
  • Get an audit of your financial statements: A CPA’s audit will serve as a second opinion regarding the validity of your finances and adds credibility to your accounting practices.
  • Create next year’s budget task force: Seek out staff and board members skilled to contribute to the assessment of the budget.
  • Organize a grant and contract application team: This important team researches, develops, and submits these applications for your organization.
  • Re-evaluate your goals: Prepare for your annual board meeting by evaluating achieved, ongoing, and new goals that should be put into place.

In addition to resources such as this financial checklist, we offer many nonprofit services to organizations just like yours. We would be happy to assist you with your specific needs.