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.