By Susan Rosati, Financial Consultant
Financial controls serve as a checks and balances for your organization. This is especially important for nonprofits because they use fund accounting which requires them to put their funds into groups. Some of these funds will be restricted so this money can only be spent on certain activities and not for general expenses. Utilizing a budget is important for cost control. Estimating your expected revenue and expenses and tracking your actual results against your budget each month will help regulate any fluctuations. Large variances can be early signs of problems and by taking corrective action your organization will weather the storm.
One of the best ways to stay on top of your financial controls is to reconcile your bank statements each month. All bank accounts should be reconciled monthly by someone who does not issue or sign the checks. Being delinquent on this function can create havoc. Every nonprofit should put controls in place for expense disbursements starting with a separation of duty. Payments should be approved by someone other than the person making the payment. This approver should make sure all necessary documentation is supplied before signing off. Vendors should be reviewed for ghost vendors that don’t actually exist. Not utilizing these procedures can cause a loss of financial control.
Other areas of control should also be addressed. Labor is often the largest part of your budget and having control measures in place is critical. For non-exempt employees, timesheets should be reviewed for accuracy and approved by management. Payroll allocations for functional expenses should be reasonable. Lastly, with all accounting functions being done online it’s imperative that your accounting system is protected against a security breach or breakdown. Nonprofits that take these measures to protect their organization will be ready when things go awry.