Your Agency’s Fiscal Health and

Controls

What are the objectives of Internal Controls?

• To prevent loss or theft of assets

• To minimize opportunities for employees or volunteers to steal

• To provide accurate information about organization activities to internal and external users

• To make sure the organization’s policies are followed

• To ensure that government and contractual requirements are met

Several types of Internal Controls

• General Accounting Controls• Receipts• Disbursement

General Accounting Controls

• Involve the board of directors in all significant financial decisions

• Segregate all duties, especially between recording assets and having access to assets (small agencies can accomplish this utilizing volunteers)

• Use pre-numbered invoices, requisitions, and checks

• Use a second person not performing the transaction to reconcile the transaction (example: person writing checks should not prepare bank reconciliation)

• Ensure the security of assets and critical documents (perform inventories, tag all significant assets, keep important documents, and blank checks locked up in locked file cabinets, perform routine software backups and store backups off site, etc. )

Receipts

Have two people who are not responsible for recording cash receipts open the mail

Endorse checks “for deposit only” immediately

Log all cash and checks on a daily cash log form or consider using a lock box

Have a person other than the person collecting cash reconcile receipts to “daily cash receipts log” and have both people sign off on the daily log

Use pre-numbered receipts when applicable

Make frequent deposits (preferably daily)

Safeguard un-deposited receipts from theft or loss by keeping in a locked cabinet until deposit is made

Disbursement

Maintain supporting documentation for all disbursements

Ensure that all disbursements are properly approved and budgeted

Require two signatures for large or out of the ordinary disbursements

Make all disbursements by check

Require that all checks are signed by someone other than the person who records or authorizes them

Use pre-numbered checks and issue checks in numerical order

Prohibit use of post dated checks and signing of blank checks

Having proper Internal Controls are EVERYONE’S

job!

The STAFF will:

Follow the established internal control policies and develop procedures

Use peer groups, CPA firm or outside consultants to ensure policies and procedures are in line with best practices

The BOARD will:

Establish a written set of internal control policies and procedures are in line with best practices

Monitor compliance with establishedReview and update policies periodically

Fiscal Health

DETERMINING PROPER EXPENDITURES

To determine the proper type of expenditures and maintain solid

internal controls, ask yourself these questions:

Is it an allowable use of funds?

Is it a reasonable use of funds?

Is it a necessary expense?

Is the purchase amount reasonable?

Is it in line with the agency’s exempt purpose?

Is it within the budget?

Is it NOT for the personal benefit of anyone involved with the organization?

Is the purpose of the expenditure clear?

Is the purchase adequately documented?

Other things to consider….

Grant Compliance

Accounting for Non-Cash Gifts

Payroll Guidelines

Grant Compliance

Know your contract – read the fine print!

Know which types of costs are allowable, which costs are reimbursable, and at what rate they are reimbursed

Maintain copies of all reimbursement/funding requests and supporting documentation in a separate file

When possible, have someone other than the person preparing the reimbursement/funding requests review and approve them

Develop appropriate allocation methodologies and maintain documentation

When in doubt, ASK QUESTIONS (The contract manager is your best resource!)

Accounting for Non-Cash Gifts

Develop guidelines for evaluating costs/benefits of non-cash gifts (for example, donated computers may be costly to repair, donated goods may require storage or disposal) – do not accept donations that are not in line with the organization’s exempt purpose

Assign someone to ensure compliance with donor restrictions and IRS guidelines

Promptly send an acknowledgement letter to the donor

Payroll Guidelines

Have employees complete and sign time sheets that are improved(in writing) by supervisors

Require any pay rate changes to be submitted in writing and approved by the Executive Director (in case the case of the Executive director, have the board president or treasurer approve)

Evaluate the option of using an outside payroll or “employee leasing” company – inexpensive and can often provide savings on employee benefits

If you maintain payroll in house, establish a procedure to review quarterly payroll tax returns and ensure that payroll taxes are deposited in a timely manner

INFORMATION SHARING also needs to be considered when establishing

health and controls.

Decide WHO needs to get WHAT information.

Board of Directors – How often? What information, reports, budgets, etc. ?

Board of Directors

Statement of activities (may also be called income statement or statement of revenue and expenses) that compares period and year to date actual revenue and expense to budget = BOTTOM LINE

Written explanation for budget variances over a certain % (will vary from organization to organization – should be determined by the board)

Statement of financial position (balance sheet) that compares current period ending balances to prior period or prior year with written explanation of significant changes

Statement of cash flows Summarized cash Flow Projections for six months or more

(may review this less often than every month) Non-financial performance indicators (will vary by

organization – may be # of people served, # of services provided by type, etc. )

Finance Committee/Management Staff – How Often? What

information, reports, budgets, etc. ?

Finance Committee/Management Staff

All information outlined above plus:More detailed financial statements, including

some level of program detailDetailed cash flow projections each monthSummary of Accounts Payable balances - % of

outstanding payables that are 30, 60, 90, and 120+ days old with explanation of any amounts older than 60 days

Summary of Accounts Receivable balances - % of outstanding receivables that are 30, 60, 90, and 120+ days old with explanation of any amounts older than 60 days

Full Board

Audit and management letter, if applicableAnnual Budget (may be summarized for full

board presentation)Trend information based on the needs of your

particular organization (may want to look at change in net assets, services provided, fundraising etc. over a five year period)

Additional information that the treasurer should review

on at least a quarterly basis….

Additional Info to review

Bank reconciliationsQuarterly payroll tax returnsCompliance with grants and other funding

sources

BOARD-STAFF Contract for Financial Accountability

Board and Staff Accountability

There may be no board responsibility more important than responsibility for the financial integrity and accountability of a nonprofit organization. The BOARD must ensure that the organization uses its funds efficiently, as donors have designated, and in pursuit of the organization’s goals. But at the same time, many BOARD members are uncertain exactly how they can carry out this responsibility.

Board and Staff Accountability cont.

Not all BOARD members need to be familiar with financial terms and concepts, but each organization needs to develop a clear and explicit agreement for how financial accountability will be ensured.

Related to the Budget….

The STAFF will:

Develop a proposed budget by program and for the organization as a whole

Be given the authority to make minor changes (such as shifting dollars among line items, or increases in variable costs that are matched by increases in earned revenue) in the budget without board approval

If significant budget variances and proposed action such as better attention to budget control or revised end-of-year projections

The BOARD will:

Develop parameters Guide preparation of the draft budgetGive careful attention to budget reportEngage in long term planning for funding,

such as identifying a target mix of contributed and earned income

Formally accept the budget, thereby authorizing the beginning operations as planned

GENERAL INFORMATION RELATED TO CONTROLS AND ACCOUNTABILITY

The STAFF will:

Make a good faith effort to communicate all significant information

Ungrudgingly complete requests for ad hoc reports

Appreciate that tough questions are appropriate and not hostile

Have good answers

The BOARD will:

Give serious attention and appropriate time to financial information

Ask good questionsBe understanding when problems occurMake only reasonable requests for ad hoc

reportsWork as problem solvers as well as governorsBe willing to ask “tough” questionsRespect the difficulty of the work, and express

appreciation when appropriate