Do You Have Controls Over Making Payments?

Does your organization have proper controls in place for making payments?  If not, there is a higher risk of fraud occurring within your organization.

Nonprofit organizations can be more susceptible to fraud due to having fewer resources available, employees that are stretched too thin, and reliance on a volunteer board that may lack financial expertise.   These organizations can also tend to focus more on the mission than on policies and procedures.

Even the smallest organization can implement controls to limit the risk of fraud occurring.  Controls not only safeguard the organization’s assets and resources, but they also improve the reliability of financial reporting, ensure the organization complies with rules and regulations, and demonstrate accountability within the organization.

Consider adding the following controls to your organization’s disbursement process, if you don’t already have them in place.

Use pre-numbered checks.  Using pre-numbered checks allows the organization to properly account for all of its checks.  This way you can easily note if there are any missing checks that may have been used inappropriately.

Use checks for all major payments.  The use of checks versus cash provides a documentation trail as to who the payment was made to, the date of the payment, and amount. Using cash for payments provides no documented evidence of the payment.

Don’t use pre-signed checks.  Signing blank checks ahead of time allows anyone with access to the check to use it for anything.  Checks should only be signed after the check is fully prepared so that the check signer knows who the check is being issued to.

Don’t issue checks to “cash”. Writing a check to “cash” is basically the same as having cash in hand. Anyone who has access to the check can receive funds from your organization’s bank account.  In those instances where cash is needed, such as to replenish the petty cash fund, issue the check to the individual responsible for the cash with a memo for its purpose.

Deface and retain voided checks.  Sometimes a check needs to be voided.  In these instances, make sure that you properly void the check so that it cannot be cashed but also maintain the voided check in your files so that you can account for every check number.

Review and approve supporting documentation.  Each payment made by the organization should have proper supporting documentation.  The documentation should include an invoice from the vendor noting the vendor’s name, date, amount, and business purpose of the payment.  This support should be reviewed and approved prior to payment occurring.  The approval should be noted on the face of the invoice to document the approval of using the organization’s funds for the payment.

• Payments to individuals should have the same information documented through an internal form.
• Reimbursements to individuals should include receipts for any expenses made.
• Mileage reimbursements should include the miles traveled, reimbursement rate, and business purpose of the trip.
• Credit card purchases should include the receipt showing what was purchased, not just the credit card charge.
• Payments for meals should include the full cost of the meal, including the tip, as well as who was in attendance and the business purpose.
• Expenses that could be considered personal in nature such as air fare, hotels, rideshares, groceries, etc. should be sure to have the business purpose noted

Don’t use debit cards.  Using debit cards is essentially giving someone direct access to your organization’s bank account.  Instead consider using a credit card that has more restrictions on its use.  Be sure to implement a credit card policy.

Implementing controls should be viewed as a way to protect the organization and the individuals within the organization.  Controls help prevent theft and fraud from occurring but only if they are properly defined and communicated to all of those involved.