Beyond Good Intentions: Mastering Internal Controls for Mission Success

Beyond Good Intentions: Mastering Internal Controls for Mission Success

As a not-for-profit leader, you’re passionate about your mission. But to effectively serve your community, you need solid internal controls. Let’s dive into practical steps to protect your organization and enhance its financial integrity.

The Importance of Written Policies

Written policies aren’t just paperwork – they’re your organization’s backbone. They protect everyone involved: your organization, board members, staff, and volunteers. Regularly reviewing these policies ensures they stay relevant and effective.

Remember, it’s about the process, not the people. When examining procedures, focus on objective standards that best protect your organization’s interests.

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Tailoring Controls to Your Organization

Your internal controls should fit your organization like a glove. Consider your size and complexity when assessing your needs. A small grassroots organization will have different requirements than a large, multi-faceted not-for-profit.

Key Areas for Strong Internal Controls:

  • Separation of Duties –This is crucial. No single person should have access to both assets and financial reporting. It’s the root cause of most theft instances. Implement checks and balances to keep everyone accountable.
  • Board Oversight – Your board isn’t just for show. They’re responsible for ensuring a strong system of checks and balances. Regular and effective oversight is key to supporting financial integrity.
  • Banking and Cash Handling – Here are some practical tips:
    • Require multiple signatures for checks above a certain amount
    • Have someone who can’t sign checks reconcile bank statements monthly
    • Consider having bank statements sent to both the office and the board treasurer’s home
    • Limit cash use and implement strict cash handling procedures at events
  • Vendor Management and Payroll – These are some practical applications to consider:
    • Create an approved vendor list for purchases
    • Outsource payroll to reduce internal threats
    • Regularly review the executive director’s expenses
  • Budgeting and Grant Management – Develop a solid annual budgeting process. Your board should review, approve, and monitor it regularly, comparing actual results to projections. For grants and designated gifts, ensure you understand and follow all donor requirements. This includes knowing what expenses are allowable and keeping proper records.
  • Background Checks – Consider requiring criminal background and credit checks for staff and volunteers in key positions. It’s an extra layer of protection for your organization.

Implementing these controls isn’t about mistrust. It’s important to create a secure environment where your not-for-profit can thrive. By taking these steps, you’re not only protecting your organization; you’re ensuring its ability to continue making a difference in your community.

Strong internal controls are a sign of a well-run organization. They show donors, grant makers, and the community that you’re serious about your mission and responsible with the resources entrusted to you. It’s simply good stewardship.

How We Can Help

Don’t wait for a crisis to strengthen your internal controls. Start by assessing your current practices and identifying areas for improvement. Schedule a board meeting to discuss these ideas and create an action plan. Every step you take towards stronger internal controls is a step towards a more resilient and trustworthy organization.

Need help getting started? Our team of not-for-profit advisors is here to guide you. Contact Rea today to tailor these methods to your unique organization. Together, we can safeguard your mission and maximize your impact. Your mission is too important to leave vulnerable.

By Chris Roush (Sarasota Office)