Operating a nonprofit organization is a great way to give back to the community or a specific cause. Managing your nonprofit’s financial records is a critical component of your daily operations. When your nonprofit organization collects cash, checks, goods, or other monetary resources, a set of specific rules and guidelines must be in place. Using internal controls are a way to prevent mishandling of the collected assets.
3 Critical Internal Controls for Your Nonprofit Organization
- The Need for a Paper Trail
In today’s electronically advanced marketplace, many nonprofits overlook the necessity of a paper trail. A paper trail helps you document accounts paid, cash received for payment or donations, invoices sent, and other details of your daily operation.
Example documents to include:
- Offer duplicate receipts for cash donations
- Keep all receipts, paid invoices, deposit slips, and other related paperwork
- Keep all paid bills, financial statements, bank deposits, employee payroll details, and other forms of daily operations.
- Print financial statements daily (you can also back up information on your computer or server)
- If using checks, consider duplicate copies to have an instant receipt of payment
- Cash on hand needs to be counted daily
- Paying with cash requires a detailed invoice
- Prior to sending out invoices, make copies, and keep detailed records in your general ledger.
When in doubt, save the paperwork – keeping too much documentation is better than not enough. Create a well-organized filing system to allow for instant access to needed documents. The smallest piece of information may help your nonprofit save money. If mishandling of funds occurs, the paper trail acts as a way to review the situation.
- Involving Employees in Financial Operations
Nonprofits rely heavily on community donations and other resources to stay in operation. Involving more than one highly responsible employee to handle financial assets benefits your nonprofit. The strict process allows a defense against the mishandled funds. Most employees understand the need for protocols involving your nonprofit’s financial information.
Examples of needing two employees to help protect your financial operations include:
- Using two signatures to release a check for payment.
- Paying funds for invoices need documentation of check number, person authorizing payment, and date of payment.
- If transferring funds electronically, set up a system to produce documentation for payment.
- Implement a two-step authorization process for electronic payment.
- Prior authorization of materials or services for reimbursement of purchase involving an employee.
- Require a receipt or invoice for reimbursement.
When asking employees to be part of your daily financial operations, you instill a sense of loyalty to the company. Most employees recognize the importance of your nonprofit’s mission and goals.
- Reporting to Your Financial Statements for Review
When using computerized software for financial statements, upload regular reports to a committee, board, or accounting firm. Consistent uploads allow another person to review the statement for possible problem areas. If you are not using computerized software or need a hard copy, create detailed reports for members of the board or committee to review.
The main reason for using internal controls is protecting your nonprofit’s financial well-being. Without strict internal controls, the chances of fraud increase. Loss of donations or other assets from the lack of strict policies can damage your nonprofit’s financial status. While setting up these controls may take some time, it will certainly be beneficial in the long run. If you need help getting organized, contact the accountants at Ernst & Wintter Associates today. Our professional staff are available to help with you basic account organization to complex and specific questions, unique to your organization.