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Blog: What You Need to Know About Internal Control Questionnaires for Nonprofits

What You Need to Know About Internal Control Questionnaires for Nonprofits

Every nonprofit organization needs internal controls to safeguard the appropriate use of financial assets. However, organizations all too easily view this need as a box that gets checked rather than a cultural priority. Organizations focused on their mission do not always recognize that up-to-date accounting internal controls are a critical way of protecting the mission. If something happens to the funds you collect, you have put your donors and their trust in your organization at risk.

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In other words, your internal controls function as a safety device for your financials. In that regard, your internal control questionnaires serve as the pre-flight checklist that ensures all safety devices are working as expected for your nonprofit.

An internal control questionnaire is a simple audit tool that you can use to assess your organization’s framework. This checklist of internal controls is a starting point from which a nonprofit can ensure that policies are being followed and protections are sufficiently up-to-date. While an organization can develop such a questionnaire based on their existing controls, having a third-party perspective can offer an added layer of protection.

Why use internal control questionnaires for nonprofits

Most organizations think of internal controls simply as a protection against fraud, but these controls also protect against more common risks that your financial systems face. Internal controls can protect against:

  • External breaches. Fraud doesn’t just happen internally. Phishing schemes and scams often target smaller organizations that are more likely to have poor internal controls.
  • Unintentional errors. Without appropriate controls, you run the risk of having inaccurate financial statements, which can devalue your organization and lead to a loss of trust among stakeholders.
  • Loss of data. Accounting and IT are becoming more closely tied than ever. Having one individual store all financial statements on their hard drive, for example, creates a high risk of loss of data. Storing information on the cloud not only makes it easier to share with the entire organization but provides a reliable backup.

A simple assessment checklist can help gauge an organization’s protection against the risks noted above. Any time you have a change in personnel or policy, an internal control questionnaire is a good starting point for determining if changes need to be made. And such a questionnaire can help new organizations establish controls.

Policies to shape your internal controls practices

Besides using an internal controls questionnaire to review best practices, nonprofits can benefit from the following tips:

  1. Make it a top-down priority. Establishing excellent policies is easy. Following those policies can be harder. The most effective organizations set the tone from the top. It’s up to your C-suite to explain to staff and members why controls are in place and why they should be taken seriously.
  2. Review regularly. If you can’t recall the last time your organization assessed its accounting processes, then it’s time to revisit your internal controls questionnaire. Regularly reviewing your internal controls is good policy. The review can be as simple as sending documents out annually for evaluation and signature or discussing policies and changes at annual meetings.
  3. Look beyond your auditors. Auditors may offer suggestions for improvement if they see controls clearly lacking, but they can’t dig deeply into every single transaction or procedure to ensure policies are followed appropriately. Rather, it must be the duty of your organization to develop, design, and test these internal controls. Your questionnaire may provide critical direction for ensuring that the system is working.
  4. Expand your team by outsourcing. Organizations with a small staff may feel limited in what accounting practices they truly control. It may feel difficult to have a balance of individuals reviewing the CEO’s or board’s expenses, reconciling bank transactions, and other activities. This is where outsourcing accounting functions can help. When you outsource these accounting functions, nonprofits get the power of a team that can share these duties–without paying for several accounting positions.

Work with a partner you can trust

It’s easy for nonprofits to let their internal controls policies become lax with the reasoning that there’s simply not enough staff or time to commit to procedures that don’t contribute directly to the mission. The truth is, however, that these financial controls are central to the mission of protecting donors, members, and other stakeholders’ contributions and trust. Fraud, error, and financial loss can hit organizations of all sizes at any time, so it’s important to prepare today.

By outsourcing accounting with Vault, nonprofits gain the perspective of a firm that has seen what happens when internal controls aren’t in place. They gain expertise in developing controls that best protect their processes and insight into solutions they may not have considered. They gain the knowledge of a full accounting team without the cost. Not ready to outsource your accounting? Then consider an internal controls assessment that digs into your policies and ensures you have adequate protection. To get started, contact Vault today.

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Chris Rauch
Chris Rauch
Chris co-leads the outsourced accounting business unit and focuses on developing strong client partnerships while ensuring that Vault’s teams provide top-notch services. He works closely with the leadership team to focus on recruiting...
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