The bad news? Fraud is a significant threat to any nonprofit’s mission, potentially leading to financial losses, damage to reputation, and even legal consequences. The good news? The more checkpoints you have in place to prevent fraud, the fewer opportunities there are for fraudulent activities, safeguarding your mission and resources.
Today, we’re sharing some simple yet powerful internal accounting controls that you can easily put in place to reduce opportunities for fraud at your nonprofit. These controls are straightforward and easily accessible.
1. Segregation of Duties
Establish an internal financial process that doesn’t rely on a single staff member to handle all financial processing. This may include processing gifts, cash donations, and other forms of funds. Assign key financial staff and team members to specific steps in the processing of these funds to help reduce opportunities for fraud.
2. Security of Cash Transactions
During nonprofit events, such as live auctions or other cash donation opportunities, it’s essential to have a policy in place for securing those dollars during and after the event for deposit. Keeping cash in a secure location, such as a locked cash box, and limiting access to the cash are key to preventing any loss or theft.
3. Access Settings in Your Accounting System
Do you have accounting software program specifically designed to ensure internal controls and settings are in place to protect against fraud? Does your program alert you to significant variances in a budget or duplicate invoices?
Setting user access restrictions helps ensure that access to financial processes is limited to only those who need it. This not only prevents unauthorized transactions but also enables a secure and auditable trail of who is accessing financial information, including transactions made, which is crucial for fraud detection and prevention.
4. Documentation and Authorization
Who can sign checks at your nonprofit? Requiring two signatories on larger checks is a straightforward method of protecting your nonprofit’s assets from fraud. Ensuring you reconcile all your accounts each month is another key preventive measure. Keeping your checks locked up, if not in use, and securing a key with one staff member can protect against check fraud.
It’s also essential to have a financial policy in place for your nonprofit, regardless of its size. Many nonprofits also have at least one board member who can review all financial reports and specifically look for variances within the monthly financial reports. Closely reviewing financial reports every month will help ensure that any discrepancies or suspicious activity can be quickly identified and addressed.
Taking these steps today will help protect your nonprofit from fraud year–round.
You can gain more insights from our webinar, ‘Positioning for Growth by Preventing Fraud in Your Nonprofit.’
