Small Actions with Big Impacts: Internal Controls for Nonprofits
by Rebecca Lunn
Given the small size or small budget of many nonprofits, some organizations may find it tempting to skimp on the internal controls of the entity. However, there are many controls that are inexpensive or easy to implement that can create a big impact in your organization.
For example, although your organization may lack employees, you can involve individuals outside the accounting function, such as the receptionist, in tasks such as opening the mail or logging invoices, to increase segregation of duties. Limiting the number of people with access to checks, limiting check signers, and simply marking invoices “paid” can also strengthen controls around cash disbursements. Developing written policies, such as a code of conduct or capitalization policy, can provide a guideline for employees to follow, creating consistency across the organization. Also, even though it may seem like an unnecessary expense, often using a payroll service to process regular payroll and prepare tax filings is often the most efficient and cost-effective manner for ensuring all laws and regulations are met. Lastly, if your nonprofit has a board of directors, it is important to report the financial position to the board on a periodic basis. This will allow the board to take any necessary actions when things are not operating as planned. Also, keeping detailed board minutes will ensure that formal approval is documented for important decisions affecting the organization. These steps are just a few of the numerous ways implementing simple controls can strengthen your organization.
If your nonprofit needs assistance in developing stronger internal controls, or improving upon existing controls, please contact our firm for more information on how we can help.
Rebecca Lunn ([email protected]) is an Senior Accountant at Langdon & Company LLP. She specializes in financial and compliance auditing for governments and nonprofit organizations.