Best Practices for Nonprofit Internal Controls

Audits and internal controls – two very common terms in the world of nonprofit accounting. You’re probably familiar with the annual ritual of audits, but how familiar are you with internal controls?

For those new to the subject, internal controls are steps and processes that you put into place to safeguard your organization’s finances. Think of internal controls like a series of checks and balances that prevent financial losses due to mistakes, common errors, and outright theft.

RBP Methods offers a free, downloadable guide to internal controls. It will help you understand this important topic and develop internal controls that work for your needs.

Why Do You Need Internal Controls?

Internal controls are necessary to remind employees and volunteers of your organization’s commitment to values, ethics, and integrity. Although controls may seem unnecessary at smaller nonprofits, they’re vital for nonprofit organizations of all sizes.

With internal controls in place, everyone in the organization understands the process, methods, and system to follow when it comes to handling the organization’s funds. This takes the guesswork out of an important aspect of nonprofit management and ensures consistency when it comes to handling revenues and donations.

Nonprofit Internal Controls

There are four steps for nonprofit internal controls. Your organization may need more or fewer steps, depending on how you are structured, how many employees you have, and the roles assigned to each. Tailor your own process documents for internal controls to your organization’s unique structure.

  1. Segregation of duties: Segregation of duties means separating out duties so that multiple people share responsibility for specific duties. For example, it’s a good idea to have someone else sign checks while another employee has the authority to write them. This separates the tasks of writing checks from signatory power and prevents someone from succumbing to the temptation to write and sign checks to themselves.
  2. Process documentation: Process documentation delineates who has the responsibility for each task, process steps, and the associated rules with each. Keep process documents simple. An outline or bullet-ed list approach makes it easier for people to understand each step and related notes in the process. You can outline, build, and eventually automate workflows once you have your process documents in place.
  3. Monitoring operations: Monitoring activities related to nonprofit internal controls includes routinely reviewing supervision and segregation of duties, reconciliation reports, checklists, physical controls such as lock-boxes and safes, internal audits and performance reviews. Nonprofit financial software such as Abila MIP Fund Accounting makes it much easier to monitor your organization’s finances through streamlined reporting, easier general ledger reviews, and more.
  4. Maintaining consistency: Unless you anticipate big changes, your organization’s finances should be consistent. Any sudden changes should be investigated. Consistency also applies to personnel and processes. If you have high turnover, as many nonprofit organizations do, then maintaining consistency through written policies, procedures, and training is essential.

Nonprofit Internal Controls and Technology

Technology can make it easier for you to implement nonprofit internal controls. Abila MIP Fund Accounting and MIP Advance can help you monitor, manage, and track your organization’s finances as part of the control process. This program features general ledger functions, reports and more to help you keep close track of your organization’s finances. Learn more about Abila MIP Fund Accounting from RBP Methods.

Download your free PDF on nonprofit internal controls, click here.

RBP Methods

RBP Methods helps right-brained people navigate a left-brained world. We offer nonprofit software and consulting services. We invite you to contact us today to discuss Abila MIP Fund Accounting, a great accounting and financial software choice for nonprofits. Contact us today or call 503-648-9051.