Internal Controls

Internal Controls for Medium-Sized Organizations

Medium-sized nonprofit organizations may have the size and volume of activities that call for internal control systems in excess of the resources available to deliver such systems. This situation does not justify inadequate internal controls. It does emphasize the need to constantly evaluate the internal costs to make sure that scarce resources are best applied.

Successful internal control systems address a number of issues. Some of the issues are: reducing the likelihood of losing assets by fraud or error; increasing the effectiveness and efficiency of operating procedures; enhancing the reliability of financial reporting, reducing the costs of audits, and ensuring the compliance with applicable laws and regulations.

An internal control system is intended to provide reasonable, rather than an absolute, assurance. There is the chance that: errors or mistakes; bad judgments by staff; limited resources; management overrides; or fraud involving collusion will not be prevented by even the best system. There are thousands of possible controls to select from for any internal control system.

Because of all these choices, there is no one system of internal control that is a perfect fit for every medium-sized nonprofit organization. The diversity of missions and business models makes the “one control system for all” approach inappropriate. However there are a number of common factors to be considered by any medium-sized nonprofit. The following sections review those factors.