Written by Sheila Filion, CPA, CA
Partner, Virtus Group
Small board governed organizations have a number of challenges in creating and maintaining strong internal control processes. The primary challenge is that financial processes are typically managed by one individual and thus, it can be difficult to create opportunities for segregation of duties or review functions.
Here are some tips on creating internal controls in a small organization environment:
- Use competent financial people – whether your organization hires a bookkeeper or finds a volunteer, ensure that the person is competent and has accounting experience. Reliable information is important to measure how the organization is doing.
- Segregate duties – wherever possible, have two people involved in financial transactions, especially those involving cash. This includes dual signatures on cheques (don’t pre-sign them!), separation between receipting and deposits and two people to sign any contracts.
- Maintain records – in most small organizations, board members may change regularly or volunteers may be very involved in the operations. Financial and other corporate records are critical to the organization and strong documentation allows the next person to review what has already happened and continue in a similar fashion.
- Report regularly – regular reporting to the board is an important review function. Having others looking at financial information and asking questions, assists with the accuracy of information and identification of issues. Financial reporting should be provided to the board monthly, even if there is no meeting.
- Get advice – your external accountant can provide ideas to improve your internal controls based on the specifics of your organization.
Internal controls are important to safeguard the assets of an organization and to assist the organization in achieving its objectives.
Other articles on Board Governance to read:
- How big should our board be?
- How often should we review our policies?
- How do I find board members?
- What does oversight mean?
- What does risk management mean?
- Donations & Fundraising - what is your policy?
- Why is effective budgeting important?
- Is the CEO doing a good job?
- How much should a not for profit organization hold in net assets?
- Should we meet with our auditor?