Nonprofit Control Deficiencies and How to Correct Them

Just as in building a home, building a nonprofit requires that certain foundations and securities be set in place. By establishing strong internal controls, nonprofit organizations can correct control deficiencies and ensure their financial health. Nonprofit organizations are encouraged to create a set of checks and balances for any associated individuals or entities otherwise known as internal controls. Instituting solid controls in your business or organization helps avoid serious issues that range from receiving a qualified or adverse opinion from auditors to more serious legal or tax implications.

Lack of Segregation of Duties

Segregation of duties involves assigning different roles with regards to nonprofit financial responsibilities. As an example, you would not want to assign the same person who assigns payroll checks to also distribute them. Additionally, you generally do not want the same individual who logs checks to also deposit them. By segregating duties within your organization, you compartmentalize certain functions while also providing “checks and balances” system which allows your nonprofit to eliminate the potential for abuse and misappropriation.

Lack of Financial Reporting Oversight

Nonprofits that are not required to have an independent audit sometimes fail to appoint an individual to exercise influence over the contents in financial statements and the individuals who create them. Assigning a member of the board of directors is perhaps the simplest way to ensure the accuracy of financial statements. Even with misconduct aside, having an individual in your organization responsible for reviewing your financial reports makes sense from a compliance standpoint.

Failure to Perform Periodic Vendor Review

Failing to have a third party periodically review a nonprofit’s vendor list is perhaps one of the most common control deficiencies seen by auditing firms. Performing a review of vendors who receive payment from a nonprofit can uncover a litany of misappropriations including theft and embezzlement. Ensure that your nonprofit assigns a neutral third party to review all transactions the organization makes at least once per year to ensure that you are controlling this important aspect of financial management.

Independent Audit

An intelligent way to approach internal controls in your nonprofit is to ensure custody of assets or physical control of any money, banking information, checks, etc., segregate of duties among staff, and to sporadically conduct surprise audits. With solid internal controls, you’ll effectively remove the possibility of misconduct. For a surefire way to guarantee that your organization’s processes, procedures, and financial records follow generally accepted accounting principles is to have an independent audit conducted by an auditor or CPA.’

Professional Audit Firm in Augusta, GA

The Baird Audit Group specializes and focuses solely on all things audit and helps organizations identify control deficiencies so that they can be corrected. Contact us today to find out more about our tailored auditing services, which include both reviews and full audits, and how we can provide your business with timely quality assurance.  Contact us online or by calling 706-855-9500.