Proper internal controls are essential for all organizations but can be very difficult for small nonprofits to accomplish due to size of the staff. It is critical that segregation of duties is implemented throughout the financial policies.
Four key controls (not all-inclusive) that should be executed are:
Review invoices and employee reimbursements
Invoices should be reviewed by someone separate from who enters the charges and signs checks. When the checks are signed, the signer should compare the checks to the invoice prior to signing. Employee reimbursements should be reviewed by a direct supervisor or executive director. The executive director’s reimbursements need to be reviewed by a board member.
Limit who is an authorized signer on any checking accounts, investment accounts or lines of credit. It is recommended that a board member be a signer, along with one or two employees of the organization. Additionally, no signature stamps should be used for check signing.
If an organization receives cash/check donations, there needs to be a two-step process with two separate employees for opening the mail and entering the donations into the accounting software. Contributions then need to be analyzed for donor restrictions and tracked to be released when those restrictions have been met.
Review of the monthly bank reconciliations and statements should be performed by someone outside of the bookkeeper/accountant position, preferably by someone who is a check signer who would have reviewed the invoices when checks were signed. In addition, a month-end checklist should be used that includes review of bank reconciliations, financial statement preparation, review of journal entries, review of check register and review of the payroll reports. These reviews should be completed by someone who is aware of what should be on those reports but not the same person who performed the original function.
Henry+Horne nonprofit accountants are here to help with your organization’s internal controls. Contact us with any questions.