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The Need for Control in Not-For-Profit Organizations

Share this page: Share Webmail / Other We tend to think about controls only in the for-profit organization context. However, controls are relevant to a broad spectrum of organizations, including governments, schools, and charities. Jack Siegel, author of A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good, outlines this top 10 list of financial controls that every charity should put in place: Control 1 - Require two signatures for checks written on bank and investment accounts. This prevents unapproved withdrawals and payments. Control 2 - The organization’s bank statements should be reconciled on a monthly basis by someone who does not have signature authority over the accounts. This is a further check against unapproved withdrawals and payments. Control 3 - Since cash is particularly susceptible to theft, organizations should eliminate the use of cash to the extent possible. Control 4 - Organizations should only purchase goods from an approved list of vendors. This provides protection from phony invoices submitted by insiders. Control 5 - Many charities have discovered “ghost employees” on their payrolls. To minimize this risk, organizations should tightly control the payroll list by developing a system of reports between payroll/accounting and the human resources department. Control 6 - Organizations should require all otherwise reimbursable expenses to be preauthorized. Travel and entertainment expenses should be governed by a clearly articulated written policy that is provided to all employees. Control 7 - Physical inventories should be taken on a regular and periodic basis and then be reconciled against the inventories carried on the books. Besides the possible detection of theft, this control also provides a basis for an insurance claim in the case of a fire, flood, or other disaster. Control 8 - Every organization should develop an annual budgeting process. The nonprofit’s employees should prepare the budget, but the board should review and approve it. Control 9 - Organizations should use a competitive bidding process for purchases above a certain threshold. In reviewing bids, organizations should look for evidence of collusion. Control 10 - Organizations that regularly received grants with specific requirements should have someone who is thoroughly versed in grant administration. The above image is made available through: CreativeCommons.org Derivative by Athivia College (2010), Original materials: Collins, Karen., Exploring Business. Retrieved Apr 8, 2010 from http://www.flatworldknowledge.com/node/123782 . Collins, Karen. Exploring Business. 1969 . Flat World Knowledge. 8 Apr, 2010.