Common Internal Controls for Nonprofit Organizations – Part 2
Part II: Common Internal Controls for Nonprofit Organizations
Continuing our examination of internal controls necessary for nonprofits to detect and deter fraudulent activity, let’s take a look at additional processes you can implement in your organization.
Pay Extra Attention to the Handling of Cash and Checks
- Secure cash, checks and signature stamps in locked drawers or a safe.
- Limit access to cash registers, drawers and safes.
- Endorse checks “FOR DEPOSIT ONLY” upon receipt.
- Record every check in a log upon receipt, and make sure to reconcile amounts per the log to deposit credits on the bank statement.
- Never “pre-sign” checks.
Those preparing checks and maintaining accounting records should not be authorized to sign checks.
Perform Reconciliations of Key Accounts
Routine and thorough reconciliations are a powerful control to help identify and correct discrepancies.
- Are funders paying you on time?
- Are automatic charges being accounted for when determining your actual current balance?
Organizations should reconcile all funds and accounts routinely—on at least a monthly basis—and record any necessary adjustments. When doing this, be sure you assign a person outside of the reconciliation process to review, sign, and date the reconciliation to signify that the review has been satisfactorily completed and any discrepancies were resolved.
Safeguard Your Technology Environment
For all electronic logins, choose obscure passwords. Never share passwords and make sure to change them periodically. Ensure you have a password-protected server that’s backed up regularly (and ideally, in a remote location) and restrict access to any files that contain sensitive information, such as payroll. Always safeguard credit cards numbers and keep them confidential.
Provide Guidance and Set The Proper Tone
Avoid putting team members in positions where they could be suspected of wrongdoing without adequate controls in place. Regularly solicit input from your team concerning the organization’s “checks and balances,” conduct training on job responsibilities, subject their on-going monitoring and provide adequate supervision.
Make “doing the right thing” always the easy choice through effective internal controls. It’s up to organization leaders to provide guidance and set the proper “tone at the top.”
Keep Fraud on Your Mind and Pay Attention to the “Red Flags”
Keep a general awareness that fraud can occur even in the best of organizations. Think about “risks” associated with fraudulent activity on a regular basis and consider how fraud might be perpetrated in your organization. In general, awareness is key to fraud prevention. With the never-ending challenges of day-to-day operations, obvious things get missed.
- Has an employee suddenly begun making lavish purchases?
- Has a team member been staying after hours and behaving suspiciously?
- Are your financial personnel reluctant to take vacation or to have others perform their assigned duties when they are away?
Be aware of unusual behaviors and activities that don’t add up—and in doing so, your organization will be better able to thrive.
Questions about which internal controls you need to implement and how to do it in your organization?
Brady Ware Nonprofit Advisors want to help you fulfill your mission with financial health and compliance services and a network of nonprofit consultants who specialize in strategic decision-making.