If your nonprofit organization has just a handful of employees (or maybe only one!), developing
appropriate internal controls for cash and bank accounts are critical for maintaining the security of
your organization’s funds. Below are some recommended processes to help reduce opportunity for fraud or other losses.
- Reconcile the bank statement monthly. This control is essential to early detection of fraud and minimizing losses to the organization. Ideally, the bank statement should be reconciled by someone who is not an account signor and someone who does not make deposits. If that is not possible due to limited employees, consider hiring a bookkeeper to perform the reconciliation or require that a Board member performs this function. Another mitigating control would be to have an independent person (such as a Board member) review and sign off on the bank statement reconciliation each month.
- Monitor who opens the bank statement. In some cases, fraud is discovered simply because a different person opens the mail. Someone other than the person writing and mailing the checks should receive the unopened bank statement and review the contents before it is reconciled. If the organization only has one employee or utilizes an outside bookkeeper to reconcile the account, consider giving a Board member read-only online access to the bank statements, so that (s)he has access to the bank statements directly from the website in order to review them for propriety.
- Keep all unused checks in a locked cabinet or closet. In addition, unused check stock should
not be maintained by the person authorized to sign checks. If that is not be possible in your organization, one of the other controls mentioned here will be necessary.
- Require two signatures on checks above a set threshold. Identify in the policy manual whether certain checks can be excluded from the requirement. For example, if a set amount is paid for rent each month based upon a signed lease, then as long as the rent is for the amount noted in the lease, a second signature would not be required.
- Cross-train staff. Require that employees take vacations and train other employees to perform their duties (such as making bank deposits and other essential accounting duties) during their absences.
- Make deposits daily or at least weekly if possible. Also remember to keep cash and checks on hand locked up in between deposits. In addition, immediately place restrictive endorsements on checks.
- Don’t permit organization checks to be made out to “Cash.” Furthermore, do not allow the use of ATM/debit cards.
transactions are properly authorized and recorded. In even the smallest organization, there can be
another person who looks over things periodically to detect questionable transactions. Fortunately,
establishing good internal controls requires more of an investment of attention than money. Thus, very small nonprofits or even all-volunteer groups can create appropriate controls and reap the benefits.
Need Help with Your Internal Controls?
Contact Scott W. Kies, CPA, CFE at (602) 277-9449, ext 308 or firstname.lastname@example.org.