Internal Controls

Allocating Expenses

Expenses are allocated to show the total cost of activities, services, and projects.  It is very important for the board and management to know the total costs of activities, services, and pro

Bank Reconciliations

If at all possible, an individual other than the person writing checks and making deposits should reconcile the bank account each month.  Many organizations hire an outside accountant or bookk

Cash

Cash is an area with a high risk of error and fraud.

Chart of Accounts

A well-developed chart of accounts is essential for:
 

Credit Card Transactions

Many people will opt to charge a contribution or a fee for a service or publication given the option.

Deposits

If possible, have an individual outside of the accounting department open the mail.

Expenses

Not-for-profit organizations are required to track expenses by natural category and by function.

Expenses

In this section we will cover:

  • Payroll
  • Facilities
  • Travel
  • Meeting
  • Allocating Expenses

Facilities Expenses

  • All leases for office space should be reviewed by an attorney experienced in office leases.
  • Reconcile invoices for rent to the office lease.  Any additional charges invoiced by th

Federally Approved Rates

Nonprofits receiving Federal funding must have federally approved rates for many allocated expenses.

Financial Reporting

It is important to report the financial position of the organization to the board of directors periodically, preferably monthly.  Every organization presents this information differently, but

Financial Reporting

  • All financial reports are based on the general ledger.  Adjustments and estimates modifying the information from the general ledger will be documented.
  • Review interim reports agai

Fixed Assets

  • Establish a policy for fixed assets detailing which fixed assets are capital (depreciated rather than expensed) assets.
  • Require prior approval of all fixed asset acquisitions and dispo

Furniture & Equipment Assets

(a.k.a. Fixed Assets)

Depending on the size of the organization, most of the furniture and equipment purchased are considered assets and not expenses.

General Controls

  • Involve as many people as possible.
  • Use only pre-numbered checks.
  • Use accounting software to print checks if at all possible.
  • Keep all unused checks in a locked

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 continuou

General Ledger

The general ledger documents all of the organization’s transactions over the course of a year for all accounts.

Internal Controls

What are internal controls?

Internal controls are the financial processes and procedures that enable the organization to safeguard its assets.

Inventory Assets

Many not-for-profit organizations maintain an inventory of publications or other items held for sale over a long period of time.

Investments

  • Establish an investment policy.
  • Require that all proceeds from investment activity go directly to a specific bank account of the organization.
  • Update authorized individuals on

Journal Entries

Most transactions are posted automatically through the accounts payable and accounts receivable modules of the general ledger software owned by the not-for-profit.

Lockboxes

If a large volume of checks is received by the organization, a lockbox may be appropriate. Banks receive the checks directly and the deposit is made upon receipt.

Meeting Expenses

  • Meetings should have formal budgets.
  • Each meeting should be assigned a unique department or project code.  This will help with analyzing variances to budgeted expenses.
  • Al

Other Assets

In addition to cash, the organization often has other types of assets. Examples of these are furniture, equipment, and inventory.

Other Cash

While writing checks and making deposits fall under the category of “cash,” there are other activities involving cash.

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