Regardless of their size or complexity, every not-for-profit should understand the crucial role that internal controls play in the operation of their organization. These controls can help ensure the proper stewardship of resources, compliance with regulations, and most importantly, the achievement of the organization’s mission. Internal controls are processes and procedures designed to safeguard assets, maintain accurate financial records, and prevent fraud and the misappropriation of funds. By implementing robust internal controls, not-for-profits can mitigate these risks and enhance their overall effectiveness. Some key areas that not-for-profit organizations can focus on to strengthen their internal controls include:

Not-for-profit governance and board oversight

A board of directors or group of trustees govern not-for-profit organizations and are responsible for overseeing the organization's activities and establishing its strategic path. Internal controls at this level play a vital role in promoting effective governance and board oversight. Additionally, internal controls set the tone at the management level for its employees to follow. This includes establishing clear policies and procedures, conducting regular board meetings, and ensuring compliance with legal and regulatory requirements. Internal controls also assist in preventing conflicts of interest and assessing an organization’s needs for mitigating risk.

Financial management internal controls for not-for-profit organizations

One of the primary areas where internal controls are crucial for not-for-profits is financial management. A not-for-profit organization can usually achieve better results and be more efficient with proper financial management. Not-for-profits rely on donations, grants, and other sources of funding to carry out their mission. Implementing internal controls in financial management helps ensure transparency, accountability, and responsible use of its funding. Some key internal controls in this area generally include segregation of duties, oversight and review, regular and sufficiently detailed financial reporting, and independent audits.

Program and grant management internal controls

Not-for-profits often manage multiple programs simultaneously and receive grants from various sources. Effective internal controls in program and grant management help ensure that funds are allocated appropriately to the various funding sources and used for their intended purposes. This includes rigorous monitoring of program expenses, proper documentation of grant agreements, and regular evaluation of program outcomes. Internal controls also help identify and mitigate potential risks and ensure compliance with grant requirements.

Information technology (IT) and data management in not-for-profits

In today's digital age, not-for-profits rely heavily on technology for their operations and data management. Internal controls in IT, such as regularly updating software and systems, can help ensure the integrity of data, including the reliability and accuracy of financial and programmatic data.

How Citrin Cooperman can help

Citrin Cooperman’s Not-for-Profit Industry Practice can assist your organization in evaluating its internal control environment and advise on any potential gaps within the system as well as industry best practices that can be implemented. If you have any questions or if you would like further information about how our team can assist your organization, please contact your Citrin Cooperman advisor or John Eusanio at jeusanio@citrincooperman.com.