Technology Enhances Internal Controls for Nonprofits

Nonprofit accounting audit service company Beck & Company Shares tips for better internal controls

Have you heard the term integrated audit technique? As a nonprofit accounting audit service, we keep our eye on the latest terms and technology available to our clients. Something new that has entered the world of nonprofit audits is the integrated audit technique. We’ll share a little about what that means and what it might mean to you.

Integrated Audit Technique

What is an “integrated audit technique?” It involves the integration of an organization’s manual internal controls with the use of technology to enhance and facilitate controls. Financial and operational areas are typically included in an integrated audit technique.

The idea is to use technology to make the auditing process easier and to help you maintain better oversight and control of your operational and financial budget. Technology cannot replace human oversight when it comes to internal controls, but it can help you flag unusual account activity and other signs that something is amiss.

How Technology Can Enhance Financial Controls

Most new accounting and financial technology offers some level of internal control. Controls currently in place can help you detect misstatements and misdirection used to mask fraud. Some of these actions can cause financial statements to be materially mistaken. At their most basic level, many financial and accounting systems have, for instance, coding built in that alerts you when an account reconciliation is unbalanced or when receivables and bank deposits do not match.

Technology controls are often split between general and application controls. General controls are, as the name suggests, broader and more sweeping in scope. They encompass the organization’s infrastructure and elements such as IT governance, network access, disaster recovery plans, and the like.

Application controls are more specific to the technology in use. When you understand all the application controls built into your system and how they work, you can use them to your advantage.

Areas of Concern

As you review both general and application controls, what should you be aware of? As a firm that provides nonprofit accounting audit services, we’ve seen some instances where an early detection of problems could have prevented many headaches later.

Some items to watch as part of your general financial controls:

  • Accounts payable
  • Inventory
  • Payroll
  • General ledger entries
  • Reporting
  • “Slush funds” or cash boxes (manual control needed rather than technology)

Areas of concern include duplicate entries, unauthorized access, and plain old common mistakes. One or two mistakes are easy to understand, but multiple mistakes made by the same person are cause for concern. This requires investigation, follow up, and potentially re-training and/or monitoring the person to help them correct their mistake.

IT Controls

Information technology is another area where having a solid control process in place is important. The technology behind your organization can help it run efficiently and effectively. The IT department must safeguard that technology. Part of the control process over the IT department includes:

  • Understanding who has access (and why)
  • Careful monitoring of system users
  • Written rules, regulations, and guidelines for technology use
  • Change management processes
  • Identification and routine updates of cybersecurity technology
  • Training for all employees on how to counteract and prevent cyber attacks.

Like financial controls, these are a few areas that nonprofits must manage carefully.

Financial and Technology Controls Need People to Manage It

Both financial and technology controls are important and can be used to help your organization avoid many problems. But the internal control process doesn’t end there. Before a nonprofit accounting audit service works with you, go over all your controls. Make sure that you are actively managing and monitoring controls.

The controls built into financial and accounting software, as well as the overall controls and management systems you put in place over your IT department, must work together to build the security of your organization. With active management and oversight, you can make technology your partner when it comes to audits and internal controls.

Beck & Company

Beck & Company is a certified public accounting firm serving the greater Washington D.C. area and the Eastern seaboard. We offer consulting services, auditing, and software selection to help nonprofits with their accounting needs. Contact us today for more information or assistance.

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