Financial Controls – A 7 Point Check List for Your Nonprofit or Church
Veracity of financial management is the cornerstone of integrity for your nonprofit or church. Just ask an organization whose financial management has been found lacking. It is the rare organization that can rebound from the bad press and lost trust surrounding fiscal mismanagement – whether intentional or unintentional.
The sustainability of your organization relies on a strategic investment and continual improvement of your accounting and financial reporting. Without excellence in financial processes and reporting, there is no transparency. Without regularly reviewed accounting practices, you are susceptible to fraud and embezzlement.
Review this 7-point checklist against your current practices. Are you in good shape? Or are there potentially dangerous gaps?
- Separate duties as a check and balance
This simply means that more than one person is responsible for a particular financial duty. For example one person prepares the checks and another person signs the checks. This serves as prevention against checks being made payable to bogus companies, or other questionable payees. Other areas where duties could be split are authorizing transactions, recording transactions, and the custody of assets.
2. Update job descriptions
It is not unusual in organizations with small staff to have individuals responsible for a variety of duties – duties that may increase or change from year to year. Documenting and updating job descriptions helps your organization monitors processes and staff. It also helps to ensure point one, separation of duties.
In addition to fraud prevention, up-to-date job descriptions are important to employee morale and better supervision of staff. You want to ensure that your financial processes and reporting are handled professionally and in a timely manner.
But what about volunteers? Volunteers should be managed like employees. They should have their duties documents and management should look to enlist volunteers that have the skill set necessary to assist in the accounting department. Unintentional mistakes can cause as much damage as intentional misdeeds.
3. Maintain appropriate skill sets
In many ways, financial management of churches and nonprofits is very different that accounting in a small business. Your accounting team must understand the processes and regulations that guide your budgeting and spending. The easiest way to do this is to hire people with the right skill set. If you cannot do that, it is important to provide the necessary training for your team.
A note on training: unfortunately training is often the first area to get trimmed to keep expenses down. However, that is often a penny-wise, pound-foolish approach. Especially if the training is around the proper use of your accounting software. Software training is crucial to ensuring that you get the most out of your investment and it follows that if people aren’t properly trained on the software they won’t be proficient on the software. Lack of technology proficiency generally leads to manual, paper-based processes that are time-consuming and error-prone.
4. Document processes
A popular best practice is working with a third party consultant, usually a CPA or accounting software technology partner, to document your accounting processes.
Having documented processes is crucial for maintaining internal controls. It ensures uniformity and correctness. Often this is done in conjunction with a new accounting software solution being implemented because many processes will have great automation and periodic reports can now be generated directly from the software system (versus manual intervention and the use of spreadsheets).
When your processes are documented it is easier to on-board a new or interim staff member. Best practices also involve periodic reviews and, if necessary, revision of processes as time and circumstances change.
5. Maintain appropriate staffing levels
If employees have more work than they can handle something will suffer. It could come in the form of sloppy procedure and corners being cut, or it could come in the form of input, processing, or reporting delays. None of which is good for the department or the organization.
Job descriptions and documented processes can help identify when the staff is being stressed and what the logical next hire should be.
Most managers aren’t pure managers – that is their time is spent monitoring the staff. Most managers are working managers with their own set of duties in additional to overseeing the management of other staff members.
If, when you saw “monitor” you groaned, keep in mind that with documented processes – monitoring is pretty easy.
7. Prepare for the worst, hope for the best
Internal controls and best practices are there for good of your organization and the constituents you serve. As mentioned above – all transparency begins with financial integrity. Accounting is a combination of people, processes, and systems. With the right guidelines, training, understanding, and (yes) controls – your accounting department will operate better and in doing so, better serve your mission.