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Your Agency’s Fiscal Health and Controls. What are the objectives of Internal Controls?. To prevent loss or theft of assets To minimize opportunities for employees or volunteers to steal To provide accurate information about organization activities to internal and external users

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What are the objectives of internal controls
What are the objectives of Internal Controls?

  • To prevent loss or theft of assets

  • To minimize opportunities for employees or volunteers to steal

  • To provide accurate information about organization activities to internal and external users

  • To make sure the organization’s policies are followed

  • To ensure that government and contractual requirements are met

Several types of internal controls
Several types of Internal Controls

  • General Accounting Controls

  • Receipts

  • Disbursement

General accounting controls
General Accounting Controls

  • Involve the board of directors in all significant financial decisions

  • Segregate all duties, especially between recording assets and having access to assets (small agencies can accomplish this utilizing volunteers)

  • Use pre-numbered invoices, requisitions, and checks

  • Use a second person not performing the transaction to reconcile the transaction (example: person writing checks should not prepare bank reconciliation)

  • Ensure the security of assets and critical documents (perform inventories, tag all significant assets, keep important documents, and blank checks locked up in locked file cabinets, perform routine software backups and store backups off site, etc. )


  • Have two people who are not responsible for recording cash receipts open the mail

  • Endorse checks “for deposit only” immediately

  • Log all cash and checks on a daily cash log form or consider using a lock box

  • Have a person other than the person collecting cash reconcile receipts to “daily cash receipts log” and have both people sign off on the daily log

  • Use pre-numbered receipts when applicable

  • Make frequent deposits (preferably daily)

  • Safeguard un-deposited receipts from theft or loss by keeping in a locked cabinet until deposit is made


  • Maintain supporting documentation for all disbursements

  • Ensure that all disbursements are properly approved and budgeted

  • Require two signatures for large or out of the ordinary disbursements

  • Make all disbursements by check

  • Require that all checks are signed by someone other than the person who records or authorizes them

  • Use pre-numbered checks and issue checks in numerical order

  • Prohibit use of post dated checks and signing of blank checks

The staff will
The STAFF will:

  • Follow the established internal control policies and develop procedures

  • Use peer groups, CPA firm or outside consultants to ensure policies and procedures are in line with best practices

The board will
The BOARD will:

  • Establish a written set of internal control policies and procedures are in line with best practices

  • Monitor compliance with established

  • Review and update policies periodically

Determining proper expenditures
Determining proper expenditures

To determine the proper type of expenditures and maintain solid internal controls, ask yourself these questions:

  • Is it an allowable use of funds?

  • Is it a reasonable use of funds?

  • Is it a necessary expense?

  • Is the purchase amount reasonable?

  • Is it in line with the agency’s exempt purpose?

  • Is it within the budget?

  • Is it NOT for the personal benefit of anyone involved with the organization?

  • Is the purpose of the expenditure clear?

  • Is the purchase adequately documented?

Other things to consider
Other things to consider….

  • Grant Compliance

  • Accounting for Non-Cash Gifts

  • Payroll Guidelines

Grant compliance
Grant Compliance

  • Know your contract – read the fine print!

  • Know which types of costs are allowable, which costs are reimbursable, and at what rate they are reimbursed

  • Maintain copies of all reimbursement/funding requests and supporting documentation in a separate file

  • When possible, have someone other than the person preparing the reimbursement/funding requests review and approve them

  • Develop appropriate allocation methodologies and maintain documentation

  • When in doubt, ASK QUESTIONS (The contract manager is your best resource!)

Accounting for non cash gifts
Accounting for Non-Cash Gifts

  • Develop guidelines for evaluating costs/benefits of non-cash gifts (for example, donated computers may be costly to repair, donated goods may require storage or disposal) – do not accept donations that are not in line with the organization’s exempt purpose

  • Assign someone to ensure compliance with donor restrictions and IRS guidelines

  • Promptly send an acknowledgement letter to the donor

Payroll guidelines
Payroll Guidelines

  • Have employees complete and sign time sheets that are improved(in writing) by supervisors

  • Require any pay rate changes to be submitted in writing and approved by the Executive Director (in case the case of the Executive director, have the board president or treasurer approve)

  • Evaluate the option of using an outside payroll or “employee leasing” company – inexpensive and can often provide savings on employee benefits

  • If you maintain payroll in house, establish a procedure to review quarterly payroll tax returns and ensure that payroll taxes are deposited in a timely manner

Information sharing also needs to be considered when establishing health and controls
INFORMATION SHARING also needs to be considered when establishing health and controls.

Decide who needs to get what information
Decide WHO needs to get WHAT information. establishing health and controls.

Board of directors
Board of Directors budgets, etc. ?

  • Statement of activities (may also be called income statement or statement of revenue and expenses) that compares period and year to date actual revenue and expense to budget = BOTTOM LINE

  • Written explanation for budget variances over a certain % (will vary from organization to organization – should be determined by the board)

  • Statement of financial position (balance sheet) that compares current period ending balances to prior period or prior year with written explanation of significant changes

  • Statement of cash flows

  • Summarized cash Flow Projections for six months or more (may review this less often than every month)

  • Non-financial performance indicators (will vary by organization – may be # of people served, # of services provided by type, etc. )

Finance committee management staff how often what information reports budgets etc
Finance Committee/Management Staff – How Often? What information, reports, budgets, etc. ?

Finance committee management staff
Finance Committee/Management Staff information, reports, budgets, etc. ?

  • All information outlined above plus:

  • More detailed financial statements, including some level of program detail

  • Detailed cash flow projections each month

  • Summary of Accounts Payable balances - % of outstanding payables that are 30, 60, 90, and 120+ days old with explanation of any amounts older than 60 days

  • Summary of Accounts Receivable balances - % of outstanding receivables that are 30, 60, 90, and 120+ days old with explanation of any amounts older than 60 days

Full board
Full Board information, reports, budgets, etc. ?

  • Audit and management letter, if applicable

  • Annual Budget (may be summarized for full board presentation)

  • Trend information based on the needs of your particular organization (may want to look at change in net assets, services provided, fundraising etc. over a five year period)

Additional info to review
Additional Info to review at least a quarterly basis….

  • Bank reconciliations

  • Quarterly payroll tax returns

  • Compliance with grants and other funding sources

Board and staff accountability
Board and Staff Accountability at least a quarterly basis….

There may be no board responsibility more important than responsibility for the financial integrity and accountability of a nonprofit organization. The BOARD must ensure that the organization uses its funds efficiently, as donors have designated, and in pursuit of the organization’s goals. But at the same time, many BOARD members are uncertain exactly how they can carry out this responsibility.

Board and staff accountability cont
Board and Staff Accountability cont. at least a quarterly basis….

Not all BOARD members need to be familiar with financial terms and concepts, but each organization needs to develop a clear and explicit agreement for how financial accountability will be ensured.

Related to the budget
Related to the Budget…. at least a quarterly basis….

The staff will1
The STAFF will: at least a quarterly basis….

  • Develop a proposed budget by program and for the organization as a whole

  • Be given the authority to make minor changes (such as shifting dollars among line items, or increases in variable costs that are matched by increases in earned revenue) in the budget without board approval

  • If significant budget variances and proposed action such as better attention to budget control or revised end-of-year projections

The board will1
The BOARD will: at least a quarterly basis….

  • Develop parameters

  • Guide preparation of the draft budget

  • Give careful attention to budget report

  • Engage in long term planning for funding, such as identifying a target mix of contributed and earned income

  • Formally accept the budget, thereby authorizing the beginning operations as planned

The staff will2
The STAFF will: at least a quarterly basis….

  • Make a good faith effort to communicate all significant information

  • Ungrudgingly complete requests for ad hoc reports

  • Appreciate that tough questions are appropriate and not hostile

  • Have good answers

The board will2
The BOARD will: at least a quarterly basis….

  • Give serious attention and appropriate time to financial information

  • Ask good questions

  • Be understanding when problems occur

  • Make only reasonable requests for ad hoc reports

  • Work as problem solvers as well as governors

  • Be willing to ask “tough” questions

  • Respect the difficulty of the work, and express appreciation when appropriate