How Internal Controls Protect Your Nonprofit's Staff and Volunteers
In nonprofit organizations, internal controls aren’t just about protecting the organization’s finances—they also play a vital role in safeguarding the integrity and well-being of your staff and volunteers. Here’s how strong internal controls can make a significant difference:
1. Reduces Risk of Fraud and Mismanagement
Without proper checks and balances, even well-meaning staff or volunteers can unintentionally mismanage funds or fall prey to fraud. Internal controls help create transparency and accountability by ensuring that no one person is solely responsible for financial transactions. This reduces the likelihood of errors and protects staff from any false accusations of wrongdoing.
Examples of controls:
Segregation of duties, so no one person handles all aspects of a financial transaction (e.g., one person approves payments, another processes them).
Regular audits and financial reviews to catch any discrepancies early.
2. Fosters Trust and Confidence
When staff and volunteers know that internal controls are in place, it builds a culture of trust. They can focus on their roles without worrying about being implicated in financial errors or fraud. Internal controls also ensure that volunteers and staff are only held accountable for their specific responsibilities, helping to avoid the blame game when something goes wrong.
Examples of controls:
Clear documentation of roles and responsibilities, so each person knows what is expected of them.
Regular training on financial procedures and control policies to ensure everyone understands how the system works.
3. Provides Clear Guidelines and Accountability
Internal controls create clear procedures for how financial transactions are handled, which protects staff from inadvertently breaking compliance rules or policies. This is especially important when handling cash, donations, or grants. Having guidelines on how to handle money ensures that everyone follows the same process, reducing the risk of mistakes.
Examples of controls:
Written procedures for cash handling, expense reporting, and donor receipts.
Use of digital systems to track and approve transactions, reducing manual errors.
4. Protects Staff and Volunteers from Suspicion
Unfortunately, in the absence of controls, staff and volunteers could be wrongly accused of theft or mismanagement, especially when cash or assets go missing. Proper controls protect them from such accusations by ensuring that transactions are well-documented and reviewed.
Examples of controls:
Two-person cash counting procedures after events or fundraisers.
Requiring receipts and documentation for all transactions to provide a clear paper trail.
5. Creates a Safety Net for Human Error
Everyone makes mistakes, and nonprofit staff and volunteers are no exception. Internal controls help catch human errors before they become bigger problems. For example, if someone accidentally enters a transaction incorrectly, a proper review process can catch and correct the mistake before it affects financial reporting or leads to a compliance issue.
Examples of controls:
Monthly reconciliations of bank statements to catch any errors or discrepancies.
Review and approval processes for all major financial transactions.
6. Encourages Ethical Behavior
When an organization has strong internal controls in place, it sets a standard for ethical behavior. Staff and volunteers are more likely to follow proper procedures and avoid cutting corners when they know there’s a system in place for monitoring transactions and ensuring compliance.
Examples of controls:
Code of ethics and clear policies on financial management and donor stewardship.
Regular training sessions that emphasize the importance of following internal control processes.
Final Thoughts
Internal controls are an essential safeguard for your nonprofit, but they’re also crucial for protecting the people who make your mission possible—your staff and volunteers. By establishing clear guidelines, increasing transparency, and minimizing risk, your team can feel secure in their roles, knowing that they’re protected from mistakes and mismanagement.