Good accountants can help new non-profits guard against fraud or financial wrongdoing by establishing proper financial controls. While there’s no way to completely eliminate the possibility of financial fraud, having proper control measures in place substantially reduces risk. As part of your accounting services to a non-profit, help protect your client’s finances by suggesting that they adopt the following basic control policies designed to help manage both financial processes and people.
Use a Single Account for Revenue
Use one bank account to collect all grant revenue and funding. Your client’s risk is minimized by having complete control centered in a single account. It is easier to restrict access and control account activity when incoming funds are all directed into one location, as opposed to having multiple revenue accounts. Setting things up so that all revenue flows directly into one account at one bank can also offer the added benefit strengthening a relationship with the selected bank since it will be the sole repository for all of the organization’s income.
Require Multiple Signatures for Withdrawals
A good basic financial safeguard is requiring multiple signatures to authorize payments or withdrawals from the revenue account. It’s common practice to base a multiple signature requirement on a specified dollar amount. You can choose a level for requiring dual signatures that is appropriate to the size of your non-profit and its scale of operations. For example, you might require two signers to authorize any transaction greater than $5,000. Alternately, the multiple signature requirement can be tied to your organization’s cash flow by setting the signature restriction level as any amount that exceeds the account’s average monthly cash balance, or any amount in excess of 5% of the account’s current balance.
Practice Regular Account Reconciliation Procedures
One of the most basic ways to control finances and reduce risk is to set up a bank reconciliation process. Conduct reconciliation reports monthly to ensure that all deposits and withdrawals properly balance. The reconciliation ties your actual bank statement and statement of financial position, so that you’ll know right away if any cash is missing or has been improperly recorded. Bank reconciliations are only effective when performed in a timely manner, so make sure there is a set schedule for doing reconciliations.
Conducting additional balance sheet reconciliations can reduce the risk of financial errors. Keeping a running tally of receivables helps ensure that the organization is properly recording and reporting all monies received. Research any material variances on a month-to-month basis to identify and reconcile any suspicious activity.
Do Background Checks
Reduce your non-profit’s risk of experiencing fraud or theft by doing background checks of both paid staff and volunteers, even if they are not directly involved with handling the finances of your organization. If your non-profit’s employees use company credit cards for expenses, such expense accounts should be reviewed regularly to ensure the cards are only being used for proper, authorized expenses.
Distribute Financial Authorization
You can enhance protective financial control by distributing financial authority across your non-profit. This may not be possible for extremely small organizations, but larger entities with more staff can separate authority for various financial transactions so that no one individual has too much financial authority or responsibility, and limited opportunity to abuse their power. If a single person is in charge of opening the mail, endorsing checks, and performing bank reconciliations, they are in a position that offers easy means to commit fraud.
Even with controls in place, individuals within your company can still collude to do financial wrongdoing. Using these best financial practices limits the opportunities for fraud and helps ensure that financial irregularities are spotted as quickly as possible.