Basic Controls

Does your organization have the proper controls in place?

Internal controls not only provide a safeguard for the organization’s assets and resources, they reduce the risk of errors and misstatements in financial reporting, improve the reliability of financial reporting, and demonstrate accountability as stewards of the organization’s resources. No matter the size of your organization, you should have internal controls in place.  Although having a multi-staffed accounting department is ideal, many nonprofits are just not able to have that.  But that does not mean that a one or two-person organization cannot and should not still have controls in place. Below are some controls that all organizations should have in place.

Set a culture of transparency and accountability.

The culture starts at the top.  Make sure your leaders exhibit behaviors that you want the rest of the organization to follow.  Implement a whistleblower policy and conflict of interest policy.

Limit access to bank accounts.

Consider how many bank accounts the organization has and who has access to each account.  Only those that need access should have access.

Reconcile all bank accounts monthly.

The reconciliation of each bank account is a key control over cash.  Make sure it is done timely.

Review the monthly bank reconciliation.

The monthly bank reconciliation should be reviewed by someone other than the individual preparing the reconciliation.  As part of the review, the reviewer should look at the reconciliation, bank statement, and all outstanding items.

Do not use debit cards.

Debit cards are essentially the same as cash.  Whoever has access to your organization’s debit card has access to your bank account.  Consider utilizing credit cards instead but be sure to limit who has access.

Review all disbursements prior to payment.

Someone other than the individual preparing the check for payment should review and approve disbursements before they occur.  This will ensure that the organization’s funds are only being used for reasonable business expenses.

Maintain supporting documentation.

All transactions of the organization should have some type of supporting documentation that shows why the transaction was made and its purpose.

Review monthly financial statements.

Your organization’s board and finance committee should be reviewing the financial statements in a timely manner, normally on a monthly basis.  Any unexpected variances between budget and actual should be addressed.

Make sure you communicate all controls to those individuals that are involved.  Your organization’s processes are only as good as the people that are doing them.  If they don’t understand their responsibilities and reason for doing them, the controls won’t work. 

Contributed by: Carrie Minnich, MAcct, CPA | Partner | DWD CPAs & Advisors