4 Scenarios that Require Nonprofit Internal Controls

Abila MIP Fund AccountingThe time to talk about nonprofit internal controls is before losses happen. While we like to think that colleagues will never steal from the organizations, these things have happened to other nonprofit organizations and it can happen to yours as well. The best thing to do to prevent loss is to put internal controls in place before something goes wrong.

Fund accounting software can help put in place nonprofit internal controls. RBP Methods offers Abila MIP Fund Accounting™ and other fund accounting software choices to help your nonprofit accurately track its finances. To learn more download this whitepaper: Internal Controls for Nonprofits.

Anyone can be tempted by lax security, financial need, or simply a bad moment. Without nonprofit internal controls in place, you aren’t doing your best to prevent people from succumbing to temptation. Internal controls may feel like we don’t trust our colleagues or volunteers, but they help keep people honest.

It’s good to remember the old adage, “If anything can go wrong, it will,” especially when it comes to handling money.

Nonprofit Internal Controls for Four Scenarios

There should be routine controls in place for all of the major financial tasks including handling payroll, donations, accounts payables, and membership fees and dues.

  • Storing checks for bank deposits: If you store checks in the office until someone can take them to the bank, have safeguards in place to secure the uncashed checks. Keep them locked in a safe or in a desk drawer. Make sure that only one or two people have access to the safe or drawer. Have two people present whenever each is opened so that one can verify the items removed or placed inside.
  • Handling petty cash: Cash may be the most tempting item since it is difficult to trace if stolen. To prevent thefts or even mistakes, have at least two people present when petty cash is counted in or out. Verify the amounts by having the second person count out the cash, too. Make sure that employees sign receipts for petty cash and provide receipts for items purchased for petty cash, including receipts for services such as taxi or car service.
  • Fundraising events: Raffles, sales, and other events may generate a lot of cash in small bills. Volunteers working raffle and sales tables may handle cash and store it at the event in a cash box or other unsecured box until it’s time to finish the event. Train volunteers and workers to never leave cash unattended at the booth or table. Instruct them to place all cash into the secure box or official cash register, never in their pockets or purses. Reconcile ticket sales with cash that night before everyone goes home to make sure no one has made mistakes.
  • Payroll: Padding timesheets with unworked hours is another form of theft that needs internal controls to prevent. Ask all managers to authorize employee overtime, and have a supervisor sign off on manager’s overtime reports if they are not salaried workers.

These steps are simple to put into place and can prevent small actions that can add up to significant losses over time. Although internal controls may feel like “spying” on your employees or that you don’t trust them, they are a must for all nonprofit organizations.

The idea behind nonprofit internal control policies is to trust yet verify. You must have a witness when handling money, and split up cash responsibilities and duties among several employees to prevent anyone from being tempted. The more controls you can put into place and make a regular part of your company’s policies, the easier it will be to prevent problems.

RBP Methods provides accounting software, advice, and consulting for nonprofit organizations. Our financial management systems include software such as Abila MIP Fund Accounting™ and AccuFund Accounting Suite. These and other software solutions for nonprofit organizations provide easy to use, understandable, and useful software to track finances for nonprofits, manage donations, donor campaigns, and much more.  Contact us or call 503-648-9051 for a consultation.