Internal Controls for Small Nonprofits: How to Protect Your Organization with Limited Staff
For small nonprofits with limited staff, implementing internal controls can feel like an impossible task. But internal controls are vital—they safeguard your finances, ensure compliance, and build trust with donors. The good news? Even with a small team, you can create effective systems to protect your organization. Here’s how.
1. Understand the Basics of Internal Controls
Internal controls are policies and procedures designed to reduce risk, prevent errors, and ensure accuracy in your financial processes. For small nonprofits, they focus on practical ways to maintain accountability without overburdening staff.
2. Segregate Duties (Even with a Small Team)
Segregation of duties is a cornerstone of internal controls, but limited staff can make it tricky. The key is separating tasks where possible.
Examples for Small Teams:
One person opens the mail and logs donations; another makes the deposit.
One person processes payments, and another reviews the bank reconciliation.
Rotate responsibilities periodically to add an extra layer of oversight.
3. Leverage Technology
Digital tools can fill the gaps when staff is limited.
Tech to Consider:
Accounting Software: Automate bookkeeping and generate reports (e.g., QuickBooks Online).
Expense Tracking Apps: Streamline receipt tracking and approvals.
Online Payment Tools: Reduce the risks of handling cash by using platforms like PayPal or Stripe.
4. Create a Paper Trail
Documentation is your best defense against errors or fraud.
Steps to Take:
Use pre-numbered receipts for cash transactions.
Require invoices or receipts for all reimbursements.
Document approvals for all financial transactions, even if they’re digital.
5. Implement Regular Reviews
Regular reviews keep your financial practices in check and help spot issues early.
Best Practices:
Reconcile bank statements monthly.
Review expense reports and financial statements with your board or finance committee.
Conduct an informal internal review of controls annually to identify areas for improvement.
6. Use Dual Controls for Cash Handling
If your nonprofit handles cash, ensure two people are involved in counting and securing it.
Practical Tips:
Always count cash with two people present, and both should sign off on the total.
Deposit cash promptly—don’t let it sit in the office or at home.
7. Involve Your Board
Your board plays a critical role in oversight.
How They Can Help:
Establish a finance or audit committee for extra accountability.
Approve budgets, review financial statements, and monitor compliance with policies.
Leverage board members’ expertise to fill gaps in financial knowledge.
8. Focus on Training
Even with a small team, training is essential to maintaining effective controls.
What to Cover:
Financial policies and procedures, including handling cash and checks.
Fraud awareness and how to spot red flags.
The importance of documenting every transaction accurately.
Final Thoughts
Internal controls don’t have to be complex or expensive to be effective. By focusing on practical steps that fit your organization’s size and needs, you can protect your nonprofit, foster trust with your supporters, and ensure your mission stays on track.
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