Wednesday, September 18, 2013

Nonprofit Knowledge Matters | 3 Rules for Small Nonprofits to Follow for Strong Internal Controls

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“We’re a small nonprofit. What internal controls do we need to have in place?”
When we created the Nonprofit Audit Guide to share financial audit requirements in all 50 states with charitable nonprofits, we noticed a shortage of information about internal controls written with an audience of small nonprofits in mind. So we were pleased to learn that the new book by Andy Robinson and Nancy Wasserman, The Board Member’s Easier Than You Think Guide to Nonprofit Financesaddresses this very topic, and delighted that they offered to share this excerpt for our newsletter because we think it really nails the important elements of strong internal controls for any size nonprofit:  

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If you’ve spent time in airports, you’ve undoubtedly seen unaccompanied minors. Maybe they’re off to see Grandma, or heading to summer camp, or shuttling between parents who live in different cities.

Airlines have elaborate procedures for handing these children from one responsible adult to the next: from parent to check-in staff to gate agent to flight attendant to gate agent to Grandma. When they’re not on planes, the kids are herded from one secure holding area to another. Every movement and handoff is tracked. If the system fails, as it rarely does, it’s big news.


When we talk about financial controls, it might be useful to think about all the ways your organization can receive, hold, or spend money (grant payments, bank accounts, credit cards, and so forth) as unaccompanied children. Without appropriate procedures, and without designated people engaged throughout the process, money can be misdirected or embezzled.

The golden rule of fundraising: Have a little respect
While you are thinking about procedures that should be in place to ensure that your nonprofit’s internal controls are strong, don’t forget about the importance of putting accountability procedures in place in connection with your donors. When a charitable nonprofit is transparent and keeps its word to donors, the donor is more likely to trust and respect the charitable nonprofit. Maintaining the public’s trust is very important for the nonprofit’s ability to attract future donations. For ideas about how your nonprofit can be more “donor-centered” in its accountability practices, there is an article on that topic in the Nonprofit Knowledge Matters archives:Showing Respect for Donors.

More resources from the National Council of Nonprofits:

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