Internal Financial Controls for Small Organizations

By Nan Jessup, 

Financial controls are part of how organizations responsibly handle their money as resources move from the donors to supporting their work. The overall goal is to have different people handling different aspects of the flow of money so that there are checks and balances in place for both receiving income and dispersing money to cover expenses.

Many of the guides for instituting financial controls have been developed for large organizations with staffing structures that include accounting departments and multi-layered staffing in administrative or executive functions. For small organizations, there are likely to be only a small number of staff or volunteers to fill all the roles mentioned in the guidelines.

It’s important for even small organizations to implement some controls. The main point to keep in mind is that no one person should be doing everything related to money. Here are some things that even small organizations can consider: 

    • Have at least two people involved in processing all the income you receive. That may mean one person enters the donations into a database or spreadsheet for donor tracking and another person then receives that batch of gifts to track it as income in your accounting system.
    • When handling cash donations, have two people present to count the money and sign off on what was received before it moves on to be recorded in your donor tracking.
    • Avoid having the person who signs checks make entries in the accounting system, such as creating invoices, recording deposits, etc.
    • Have at least two people involved in paying bills. One person can enter bills into the accounting system and prints checks, and then the check signer can review the bills before signing the checks.

For organizations that only have one paid staff member, a local board member may be able to cover some of the positions mentioned above. Volunteer organizations may have enough volunteers to cover some of these roles but can use a board member, too. What’s most important is that you implement whatever aspects you can practically handle so that it’s clear you have a system in place to responsibly manage the organization’s assets.

Unfortunately, nonprofit organizations have experienced embezzlement. History has shown that most often it’s a long-time, trusted staff member in a personal financial crisis who ends up embezzling funds. By instituting financial controls, you’re respecting the trust your donors have extended to you and protecting your work.

There’s an even more important benefit that makes this worthwhile in a day-to-day sense: When more people are involved in the work of managing income and expenses, there’s an increased breadth of knowledge within the organization for both the processes that need to be done and an overall understanding of the financial situation of the organization.