Category: Uncategorized

No one likes to think about internal controls, but an important component of nonprofit financial management is developing and implementing a strong set of such controls to mitigate risk and prevent fraud.

Make internal control processes easier with Beck & Company’s client accounting services. Contact Beck and Company online or by phone at (703) 834-0776 to learn how quickly you can improve your internal controls.

Nonprofit theft is shockingly common, according to the Boston Globe. Over 1,100 charities reported theft, embezzlement, or another major diversion of assets, according to an IRS report cited in the Globe article. At one nonprofit serving the homeless, the COO brazenly added funds to his own paycheck. These and other examples of nonprofit fraud and theft are unfortunately common.

Why so many problems in the nonprofit world? After all, one would think that people dedicated to serving a particular mission or vision would be scrupulously honest. Every dollar embezzled by the COO previously cited could have been spent to feed, clothe and house homeless families. So why the embezzlement?

People can be tempted to steal no matter where they work. And, unfortunately, nonprofits can be more trusting than other organizations.

The answer for good nonprofit financial management lies in having strong internal controls. Internal controls are the measures you take to ensure rigorous honestly in all your financial dealings. With good internal controls in place, you’ll have a series of checks and balances to protect financial assets.

The 10 Things Nonprofits Should Know About Internal Controls

1. Why are internal controls necessary? Internal controls are more than rules and regulations. They are guidelines for how funds are handled throughout your organization. By establishing a set of clear, unambiguous internal controls, nonprofit financial management is easier for all.
2. Assess your current internal controls and update as necessary. There’s no one-size-fits-all set of internal controls you can put in place that will answer all of your organization’s needs. Instead, assess your current internal controls and note any gaps. Compare them to the three COSO objectives (below) and see how yours measure up. Adjust as necessary.
3. Review internal controls against the three COSO objectives. There are actually five COSO objectives, but three stand out and apply directly to our discussion of internal controls. These include:
1. Risk assessment, especially risk identification and challenges.
2. Control activities, including policies and procedures as well as outsourcing risks, backups and more.
3. Monitoring, which includes both ongoing and periodic monitoring and assessment of internal controls.
4. Evaluate organization level controls. Organization or entity-level controls refer to the most basic level of controls in place to safeguard financial assets. Many organizations have internal controls in place, but are they being followed? An example of an internal control at the organizational level may be a blanket policy that all expense reimbursement requests must be accompanied by an original receipt. This may seem like a simple control, but it can prevent a great deal of fraud across the organization if the policy is carried out.
5. Determine information technology controls. Another area of potential fraud is through information technology resources. The IT department collects and maintains a great deal of valuable data at a typical nonprofit. Donor and member credit card information, for example, can be used to perpetuate fraud. Controls over who can access data are important to safeguard it.
6. Build controls around segregation of duties. It’s unhealthy to have all of the access to financial information in the hands of one or two people. Make sure your internal controls include segregation of duties. For example, the person who reconciles the bank statement isn’t the same person who deposits the money.
7. Put in place fraud prevention controls – and follow them. Fraud prevention controls include things like internal audits, a good component of any nonprofit financial management plan. Other fraud prevention controls include simple things like having someone double-count the cash, ensuring that the bank statements are reconciled promptly and similar actions. But perhaps more important than even having fraud prevention controls is actually following them. Don’t just pay lip service to fraud prevention, but make sure that fraud prevention controls are documented in writing, the staff is taught how to adhere to them, and there’s follow up and accountability to ensure compliance.
8. Document all policies and procedures. It’s easy to talk about fraud prevention and internal controls and then forget about them when you get busy. It’s harder to forget about them when you have everything documented in writing. Write down the policies and ensures the entire team, not just accounting and finance, attends training sessions to understand and follow them.
9. Recognize common procedural gaps. Be sure to look across all areas of your organization so that best practices cover both people at the top and those at the entry-level positions. It’s obvious that controls need to be in place within the finance and accounting department, but often companies forget that other workers have access to sensitive information or financial documents. Annual reviews of existing processes, external audits, and working with a nonprofit accounting audit services can help you recognize and close any gaps in your processes.
10. Address gaps immediately. There are always going to be gaps in any policy – that’s human nature. But don’t let those gaps in your policies remain open. Instead, update policies to ensure gaps are closed as soon as possible.

Need more details on implementing Internal Controls for your nonprofit? Download our whitepaper, “A Nonprofit’s Guide to Internal Controls.”
Nonprofit financial management includes strong internal controls that prevent theft, fraud, and embezzlement. With these best practices and diligent training on procedures, you’ll be in a much better position to safeguard your organization against problems.

Beck & Company

At Beck & Company, we work with many nonprofits to help them improve their internal controls. We have extensive experience and a tradition of creative thinking, technical expertise, and a collaborative spirit that can help your nonprofit achieve its goals. Whether you want to increase donor confidence and support through transparent accounting practices or find a partner for your annual audit, we can help. Contact us today or call 703-834-0776.

Traditional nonprofit financial management may look askance at Bitcoin, Ethereum, LiteCoin, Dash and other cryptocurrencies, but love them or hate them, crypto is here to stay. It provides a secure alternative to traditional currency and can be tracked and monitored in a public, transparent way.

What Is Cryptocurrency?

Cryptocurrency began in 2009 with the release of a white paper that outlined Bitcoin, the very first cryptocurrency. Bitcoin is now just one of hundreds, perhaps thousands, of blockchain-based ‘coins’ that transmit value through proof of work, proof of stake, or other forms of blockchain mining.

Blockchain technology itself is more than cryptocurrency. Blockchain is a continually growing record that consists of blocks of code. Each block, once confirmed, is permanent and unalterable. It is a decentralized record in that the code that powers a blockchain is held on multiple computers worldwide. Most blockchains are public and open for verification and build-outs. One of the most famous blockchains aside from the one that powers Bitcoin is Ethereum. The Ethereum blockchain is used to build something called smart contracts, which are contracts that eliminate the need for third party verification.

If you think this is all just a passing fad, think again. While the run up of Bitcoin prices is reminiscent of other financial bubbles in the past such as the real estate or internet stock bubble, blockchain technology is now being used to test recording real estate deeds and records in Sweden, secure email communications through a company called Envilope, and enable secure, transparent records in many areas including healthcare, real estate, and more.

Cryptocurrencies and Nonprofits: Expanding Donations

Nonprofits can expand their donation avenues by accepting Bitcoin and other cryptocurrencies. To do so, you’ll need to open an account on a recognized cryptocurrency exchange. Since there is no official registration of exchanges akin to the stock exchange, you will need to do additional due diligence to find some of the better-known exchanges.

Legitimate cryptocurrency exchanges have a KYC or know your customer process in place to verify identification. Expect it to take 7 to 10 days to complete the KYC process.

Once your nonprofit is registered with an exchange, it has a wallet address. Wallet addresses are the public code, usually in the form of a QR code graphic or a long string of letters and numbers, that funds are transferred into. Once transferred, the transfer cannot be reversed. The exchange will deduct a percentage of the overall fee once the currency is in your virtual wallet. You can then exchange cryptocurrencies into dollars or other currencies and transfer that amount into your bank account.

For nonprofit financial management, be sure to keep accurate track of all financial transactions on cryptocurrency exchanges. Taxation laws and reporting laws around cryptocurrencies are constantly changing and evolving, and you may need your records handy to comply with the law when it comes time to reporting income. As of 2014, the IRS considered cryptocurrencies as property for tax purposes, but  recent statements make it sound as if they are leaning towards regulating it like a security. Clear guidance is still lacking.

Using Cryptocurrency as a Marketing Tactic

Lastly, consider targeting specific individuals or groups who may wish to donate using Bitcoin. Fortunes have been made over the past decade thanks to the stratospheric rise in BTC value and other currency values. Create and build a list of cryptocurrency leaders and solicit donations through direct, personal outreach.

Millennials and Generation Y and Z individuals are all more comfortable using cryptocurrencies than their older counterparts. These young people may already own Bitcoin or other coins and wish to use them for donations. If your nonprofit accepts cryptocurrencies as donations, you can send specific promotions to this demographic and include that QR code to make donating easy and fast for them.

Accepting cryptocurrency as a donation may seem far-fetched but many nonprofits are experiencing the benefits of this new technology-facilitated money. It’s secure, irreversible from the donor’s side, and fairly easy to set up to accept. Why not give it a try?

Beck & Company

Since 1987, we have helped many nonprofits in the Washington D.C. area and along the Eastern seaboard with their accounting and financial management needs. We provide audit, tax, accounting, and consulting service that addresses all aspects of a small to mid-sized nonprofit organization’s business. Contact us or call 703-834-0776 x8001.

First there was intelligence quotient (IQ) then emotional intelligence. Now, there’s cultural intelligence. Nonprofit financial management success must include all three in today’s connected world to be successful.

Different Types of Intelligence

The original IQ tests or intelligence quotient was derived as a test for army soldiers in the early 20^th century. The same pioneers who brought you IQ tests developed things like the SAT test and other aptitude tests. These early data scientists believed that nearly every personal characteristic could be measured and quantified.

Peter Salovey and John D. Mayer coined the term ‘emotional intelligence’ in 1990 to describe an individual’s ability to  “monitor one’s own and others’ feelings and emotions, to discriminate among them, and to use this information to guide one’s thinking and action”.  David Goleman, a writer for The New York Times, popularized their work in a book released in the 1990s, and the term became common parlance or shorthand for the ability to read and utilize emotional information in conversation.

Today, add to that a new term: cultural intelligence. Cultural intelligence refers to an individual’s ability to recognize, interact with, and respond appropriately to people of other cultures.

In the world of nonprofit financial management, cultural intelligence is rapidly becoming as important as emotional intelligence. While intellectual giftedness and intelligence is widely recognized as a desirable attribute, without emotional and cultural intelligence, those with high IQs tend to be like Sheldon Cooper on the television show “The Big Bang Theory” – smart, able to do their work easily, but difficult to live, work, and interact with on a daily basis without wanting to tear your hair out.

Examples and Benefits of Cultural Intelligence

Every one of us hails from a unique culture. That culture may be white, suburban, and middle class, Jewish and upper class, or Chinese immigrant. Each culture brings with it a series of cultural norms in dress, behavior and attitude that when understood and respected, can serve as an icebreaker in the business world.

Take the example of two job candidates for a position in nonprofit financial management. Both candidates are white women who hail from middle class backgrounds. But Candidate A has traveled widely during and after her college years, spending time working on volunteer projects in Haiti, the Dominican Republic, and Thailand. Candidate B does not have that richness of cultural exposure or interaction. Which candidate is better for nonprofit financial management in an organization that interacts on a global basis?

If your staff consists primarily of people from a homogenous culture and interacts only with people of the same culture,  Candidate B may be perfectly suitable. Candidate B, to be fair, may have a deep and abiding respect and admiration for other cultures, too. But Candidate A has actually lived, worked, and spent time in other cultures, immersing herself in their traditions and norms. She may more easily fit in a meeting with people from Caribbean, Central American and Asian cultures.

All people can learn to be aware of other cultures and respect their norms. Most people know, for example, that in Jewish culture, men wear yarmulkes inside the synagogue and that Amish people prefer not to have their pictures taken. Respect for each culture means wearing appropriate clothing when entering a house of worship and adhering to the ‘no picture’ rule if you happen to drive by an Amish barn raising on your next trip through Pennsylvania, Indiana, New York or Virginia Amish country.

Practical Application of Cultural Intelligence

Respect is fine and a welcome attribute. But what is the practical application of cultural intelligence?

In some instances, it creates bonds of respect between individuals. Those who demonstrate respect for other cultures, such as dressing conservatively when visiting Middle Eastern countries or not making eye contact in an Asian business meeting, may bridge the gap more easily between colleagues. This creates common ground, shared understanding, and the basis of trust for future business dealings.

Inside your nonprofit organization, you are likely to encounter people from many, diverse cultures. We live in a world where cultural identity and embracement is the norm rather than the exception; we live and work in the United States in an immigrant culture, one that is more likely to find a place for those who dress, look, or behave differently than the standard culture.

Those who possess cultural intelligence will be far better equipped to make business connections and handle themselves gracefully across all cultures. Combine that with high IQ and strong EQ, and you’ve got a winning combination for success.

Beck & Company

Since 1987, we have helped many nonprofits in the Washington D.C. area and along the Eastern seaboard with their accounting and financial management needs. We provide audit, tax, accounting, and consulting service that addresses all aspects of a small to mid-sized nonprofit organization’s business. Contact us or call 703-834-0776 x8001.