Internal controls for nonprofit organizations are not a goal in themselves, but a way to achieve established goals.
Sometimes it’s tempting to think that reviewing or reevaluating an organization’s internal control processes is a waste of time. In fact, that review is what can guarantee the maximization of both financial resources and human capital. Let’s start with a simple definition: internal control is the set of rules, principles, processes, and procedures — organized and related to each other — that, together with your team, constitute a means to achieve organizational objectives. Internal controls are the foundation the organization’s operations rest on, and they’re also an instrument of efficiency.
The importance of internal controls comes down to protecting the organization’s resources from losses due to fraud or negligence, and ensuring the accuracy and integrity of the financial data management relies on to make decisions. Internal controls also make sure activities and resources stay directed toward the organization’s mission, vision, and objectives, while guaranteeing efficiency and economy across all operations. They’re an integral part of the organization’s financial systems, planning, and operational information. Responsibility for establishing, maintaining, and improving the internal control system sits with the organization’s highest authority — its board of directors and executive team — and that leadership has to ensure every department manager complies with the controls in place.
A working internal control system is necessary to achieve growth, diversification, and — above all — to build the reliability that funders rely on when deciding to allocate resources to your organization. Evaluate where your organization stands on internal controls, and if adjustments are needed, we encourage you to act on them as soon as possible. At Pecunia Group, we’ve seen this be the difference for many nonprofits in increasing the funds they receive from federal and state agencies.