Protecting your data, information, and financials should be your top priority as a 503 (c) organization. Raising funds and winning grants is not an easy process, and you should be doing everything you can to safeguard your funds and financial information. Misuse, fraud, theft, and embezzlement are common occurrences, and if you don’t have the proper policies and procedures in place to protect your financials, you could put your organization at great risk. Smaller 501(c)3 organizations in particular have a difficult time maintaining the proper controls to protect their organization. Because their staff is limited (some organizations have fewer than 3 staff members) and their time is precious, many smaller organizations have difficulty segregating duties and implementing a system of checks and balances. Even if they don’t have the staff to maintain the same internal controls as larger organizations, smaller organizations can implement a few key controls to ensure that their financials are protected.
We’ve created a list of the top internal controls small 501(c)3 organizations should implement in order to properly protect their funds and financial information. Keep the following in mind as you begin to create your financial policies and procedures:
- First and foremost, make sure your entire staff is aware of the policies and procedures you have in place. Everyone should be expected to follow these policies; there should be no exceptions. Excluding even the top person can set a negative (and even unethical) tone among your staff and lead to your staff ignoring procedures and cutting corners.
- Implement physical controls. Lock up your files, password-protect your computers, and always keep checks in locked drawers. Simple security measures with your physical assets can go a long way in protecting your organization.
- Clearly define the roles and responsibilities of everyone in your organization. Roles and responsibilities need to be written down even in small organizations. Determine who is responsible for what and make sure every staff member is aware of their duties. Failure to do so can cause things to slip through the cracks and place your organization at risk.
- Reconcile your bank statements. This may seem obvious, but it needs to be said. Reconciling your bank statements is crucial to protecting your financials. If you reconcile your bank statements regularly, embezzlement can’t – and won’t – go on for very long. We recommend someone other than the bookkeeper (or whomever handles the money) reconciles the bank account; however, some smaller 501(c)3 organizations do not have a bookkeeper or only have one person who does everything. In this case, we would recommend having a board member (or someone else in a similar role) receive and review the bank statements before handing it over to the staff.
- Always have two people present when counting cash. Cash handling is extremely risky, and you need to implement strong policies and procedures for dealing with cash. Hold your staff accountable with all cash that flows through the organization.
While these internal controls cannot help your organization raise more funds or win more grants, they can ensure that you keep your hard-earned (or hard-won) money. If your 501(c)3 organization has any questions regarding setting internal controls or accounting in general, give us a call today. We offer a variety of services designed to help you run a successful and effective 501(c)3 organization.