Your Agency’s Fiscal
Health and Controls
What are the objectives of Internal Controls?
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To prevent loss or theft of assets
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To minimize opportunities for employees or volunteers to
steal
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To provide accurate information about organization activities
to internal and external users
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To make sure the organization’s policies are followed
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To ensure that government and contractual requirements are
met
Several types of Internal Controls
• General Accounting Controls
• Receipts
• Disbursement
General Accounting Controls
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Involve the board of directors in all significant financial decisions
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Segregate all duties, especially between recording assets and having access to assets
(small agencies can accomplish this utilizing volunteers)
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Use pre-numbered invoices, requisitions, and checks
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Use a second person not performing the transaction to reconcile the transaction
(example: person writing checks should not prepare bank reconciliation)
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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. )
Receipts
 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
Disbursement
 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
Having proper
Internal Controls
are EVERYONE’S
job!
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:
 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
Fiscal
Health
DETERMINING PROPER EXPENDITURES
To determine the proper type of
expenditures and maintain solid internal
controls, ask yourself these questions:
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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….
 Grant Compliance
 Accounting for Non-Cash Gifts
 Payroll Guidelines
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
 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
 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.
Decide WHO needs to get
WHAT information.
Board of Directors – How often?
What information, reports,
budgets, etc. ?
Board of Directors
 Statement of activities (may also be called income statement or
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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
 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
 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 information that the
treasurer should review on at
least a quarterly basis….
Additional Info to review
 Bank reconciliations
 Quarterly payroll tax returns
 Compliance with grants and other funding sources
BOARD-STAFF Contract for
Financial Accountability
Board and Staff Accountability
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.
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….
The STAFF will:
 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 will:
 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
GENERAL INFORMATION
RELATED TO CONTROLS AND
ACCOUNTABILITY
The STAFF will:
 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 will:
 Give serious attention and appropriate time to
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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