Internal Controls

General Information

General Information

  • The internal control system needs to be documented (the expected results or outcomes of the system and what everyone does need to be put in writing) and constantly evaluated.  A continuous quality improvement (CQI) system should be implemented for the evaluation.
  • All the nonprofit’s staff must receive training about the internal control system and their individual responsibilities within the system.
  • The organizational chart, accounting procedures, record retention policy, and chart of accounts must be maintained on a timely basis to eliminate outdated information and include current information.
  • Standardized and/or pre-numbered forms should be used whenever reasonable.  The control over pre-numbered forms is maintained by individuals who do not use those forms.
  • All journal entries are supported with information that clearly document and justify each entry.
  • The organization needs a conflict of interest policy.
  • Appropriate bonding must be maintained on employees.
  • Recordkeeping duties are separated from operational and custodial duties.
  • Staff assignments are rotated and staff are required to use vacation time.
  • The internal control system is reviewed annually with the board committee (typically the audit committee) responsible for assessing the organization’s internal controls.
  • Use your financial system to calculate and process financial information whenever possible.  Minimize the use of spreadsheets and journal entries if the financial system performs allocations, calculates and posts depreciation and other like items.