Fund Accounting Enhances Nonprofit Internal Controls

nonprofit internal controlsNonprofit accounting software and consulting company, RBP Methods, shares tips for improved nonprofit internal controls.

Have you heard of the new “integrated audit technique” that has entered the nonprofit world? In essence, this technique can enhance your nonprofit internal controls. Internal controls and fund accounting are both necessary and provide safeguards against losses, thefts, and mistakes. RBP Methods offers Abila MIP Fund Accounting™ and other fund accounting software choices to help your nonprofit accurately track its finances.

The “Integrated Audit Technique”

What is the “integrated audit technique?” This technique provides a broader scope on the adequacy and effectiveness of nonprofit internal controls to lessen the gravity of business risks. It also involves the integration of an organization’s manual nonprofit internal controls with the use of technology, financial and operational auditing types to enhance and facilitate controls.

The idea is to use fund accounting to make the auditing process easier and to help you maintain better oversight and control of your operational and financial budget. Technology cannot replace human oversight when it comes to internal controls, but fund accounting for nonprofits can help you with any red flags of unusual account activity and any other signs that something is not right.

How Fund Accounting Can Enhance Financial Controls

Most new fund accounting for nonprofits and financial technology offers some level of internal controls. The controls that are currently in place will help detect misstatements and misdirection used to mask fraud within your nonprofit. Some of these actions can cause financial statements to be materially mistaken. Financial and accounting systems have, at their most basic level, coding built into the system that alerts you when the account reconciliation is unbalanced or when receivables and bank deposits do not match.

Technology controls are often split between general and application controls. General controls are, as the name suggests, broader and more sweeping in scope. They encompass the organization’s infrastructure and elements such as IT governance, network access, disaster recovery plans, and the like, whereas, application controls are more specific to the technology in use. When you understand all the application controls built into your system and how they work, you can use them to your advantage.

Early Detection of Fraud and Internal Controls to Set in Place

What should you be aware of as you review both general and application controls? As a firm that provides nonprofit fund accounting services, we’ve seen some instances where an early detection of problems could have prevented many headaches in the long run.

Some items to watch as part of your general financial controls:

  • Accounts payable
  • Inventory
  • Payroll
  • General ledger entries
  • Reporting
  • “Slush funds” or cash boxes (manual control needed rather than technology)

Areas of concern include duplicate entries, unauthorized access, and plain old common mistakes. Something to keep in mind is that one or two mistakes are easy to understand, but multiple mistakes made by the same person should be cause for concern as a red flag appears. This should require an investigation, follow up, and potentially re-training and/or monitoring the person to help them correct their mistake and/or prevent fraud.

IT Controls

Information technology is another area where having a solid nonprofit internal control process in place is important. The fund accounting behind your organization can help it run efficiently and effectively and the IT department must safeguard this aspect of your nonprofit. Part of the control process over the IT department includes:

  • Understanding who has access (and why)
  • Careful monitoring of system users
  • Written rules, regulations, and guidelines for technology use
  • Change management processes
  • Identification and routine updates of cybersecurity technology
  • Training for all employees on how to counteract and prevent cyber attacks.

Like financial controls, these are a few areas that nonprofits must manage carefully.

The Need for People to Manage Nonprofit Internal Controls and Technology

Both financial and technology controls are important and can be used to help your organization avoid many problems, but the internal control process doesn’t end there. Before a nonprofit accounting audit service works with you, go over all your controls. Make sure you are actively managing and monitoring internal controls within your nonprofit.

The controls built into financial and fund accounting software, as well as the overall controls and management systems you put in place over your IT department, must work together to build the security of your nonprofit. With active management and oversight, you can make technology your partner when it comes to fund accounting and 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.

RBP Methods

RBP Methods is a nonprofit software and consulting firm that helps right-brained people navigate a left-brained world. We want to help our nonprofit customers prevent losses and fraud. By utilizing good nonprofit fund accounting software, such as Abila MIP Fund Accounting™, you can keep careful track of all of your accounts and detect suspicious activity quickly. Contact us today or call 503-648-9051.