Internal controls is the process of actively maintaining and following policies and procedures to protect your organization’s assets, create reliable financial reporting, promote compliance with laws and regulations, and facilitate effective and efficient operations. The benefits of strong internal controls include:
- Protection for your organization’s financial, physical, and digital assets
- Increased confidence to donors and funding recipients
- Maintaining compliance
Creating Strong Internal Controls
Internal controls focus on prevention, detection, and correction of errors, theft, and fraud before they occur. Organizations should set up plans to monitor and enforce adherence to internal controls policies and procedures and review them periodically to determine if updates are needed.
Internal Controls in Action
One of the most important internal controls to have in place is segregation of duties. Segregation of duties ensures that different people complete various steps in a process to reduce chances of fraud. Other important internal controls include:
- Information Technology Controls – Anti-virus software, passwords, email encryption, IT updates and backups, etc.
- Policies and Procedures – Financial and personnel policies and procedures, disciplinary actions, background checks, etc.
- Physical Assets Controls – Inventories of assets, locking file cabinets, alarms.
- Financial Controls – Bank reconciliations, audits, 2-person approval processes, etc.
- Staff Reporting – Anonymous reporting channel, whistleblower policy, periodic management reviews, etc.
Additional Resources
There are many great resources available for nonprofits to enhance internal controls within their organization. Please see our TA Session page for a recorded training and materials that include links to templates, articles, and checklists about internal controls.