No one likes to talk about internal controls. It makes people feel uncomfortable to think about a colleague or coworker stealing from the company or otherwise doing something wrong. Yet internal controls are necessary for accounting for nonprofits, the same as they are necessary at for-profit companies. Some might even say they are even more important at nonprofits, which may run with fewer staff or more personal responsibility.
Anyone can be tempted by lax security, financial need, or simply a bad moment. Without internal controls in place, you aren’t doing your best to prevent people from succumbing to temptation. Internal controls may feel like we don’t trust our colleagues or volunteers, but they help keep people honest.
It’s good to remember the old adage, “If anything can go wrong, it will,” especially when it comes to handling money.
Internal Controls for Typical Scenarios
Accounting for nonprofits includes handling payroll, donations, accounts payables, membership fees and dues, and other financial tasks. There should be routine controls in place for all common tasks including:
- Storing checks for bank deposits: If you store checks in the office until someone can take them to the bank, have safeguards in place to secure the uncashed checks. Keep them locked in a safe or in a desk drawer. Make sure that only one or two people have access to the safe or drawer. Have two people present whenever each is opened so that one can verify the items removed or placed inside.
- Handling petty cash: Cash may be the most tempting item since it is difficult to trace if stolen. To prevent thefts or even mistakes, have at least two people present when petty cash is counted in or out. Verify the amounts by having the second person count out the cash, too. Make sure that employees sign receipts for petty cash and provide receipts for items purchased for petty cash, including receipts for services such as taxi or car service.
- Fundraising events: Raffles, sales and other events may generate a lot of cash in small bills. Volunteers working raffle and sales tables may handle cash and store it at the event in a cash box or other unsecured box until it’s time to finish the event. Train volunteers and workers to never leave cash unattended at the booth or table. Instruct them to place all cash into the secure box or official cash register, never in their pockets or purses. Reconcile ticket sales with cash that night before everyone goes home to make sure no one has made mistakes.
- Payroll: Padding timesheets with unworked hours is another form of theft that needs internal controls to prevent. Ask all managers to authorize employee overtime, and have a supervisor sign off on manager’s overtime reports if they are not salaried workers.
These steps are simple to put into place and can prevent small actions that can add up to significant losses over time. Although internal controls may feel like ‘spying’ on your employees or that you don’t trust them, they are a must for all nonprofit organizations.
The idea behind internal control policies is to trust yet verify. You must have a witness when handling money, and spit up cash responsibilities and duties among several employees to prevent anyone from being tempted. The more controls you can put into place and make a regular part of your company’s policies, the easier it will be to prevent problems.
At Beck & Company, we offer CPA services, nonprofit accounting, and business advisory functions for nonprofit organizations. Contact us today if you would like more information about our services or help with your nonprofit business needs.