Best Practices: Internal Controls at Not-for-Profit Organizations

In Pennsylvania alone, there are 63,345 not-for-profit organizations that employ over 15% of the state’s workforce.  These organizations generate almost $132 billion in annual revenues. 

However, many not-for-profit organizations do not have the budgets -- or staff -- to allow for appropriate segregation of duties to prevent and deter fraud.  As a result, not-for-profit organizations may be vulnerable to fraud from employees or vendors.  There are various internal controls that organizations can implement, even with limited resources, including:

  • Being vigilant and proactive – Management needs to be involved and simply pay attention
  • Keeping records – Track all transactions, donations, grants, expenses, etc.
  • Using sound hiring practices – Check references and conduct criminal history background checks for new employees
  • Stressing transparency with all stakeholders – Organizations need to communicate the cash inflows and outflows with all members, donors, board members
  • Focusing on proper tone at the top – Ethical culture should be established by leadership of the organization
  • Dividing the work – Rotate job duties, so that one person does not have control of all aspects of revenue collection, purchasing or spending

Nonprofits should realize that, despite being organizations that may serve the broad public interest, they are not exempt from fraud, and they can even be targets.  A small, upfront investment in appropriate internal controls can prevent larger fraud costs in the end.

For more information on fraud prevention or detection, contact Brian Webster at [email protected], or any member of the Schneider Downs client service team.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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