Essential Internal Controls for Nonprofits: Safeguarding Your Mission
Running a nonprofit is both a meaningful pursuit and a serious responsibility. Whether supporting local communities, advancing global initiatives, or preserving cultural heritage, strong internal controls are vital to protecting an organization’s resources, earning donor trust, and ensuring compliance.
For many nonprofits—especially small or volunteer-led ones—the idea of establishing internal controls can feel overwhelming. The good news? Internal controls don’t have to be complicated or costly to be effective.
What Are Internal Controls and Why Do They Matter?
Internal controls are the policies and procedures that help an organization safeguard assets, ensure accurate financial reporting, prevent fraud, and promote transparency and accountability. Think of them as the financial and operational guardrails that protect an organization’s mission.
Because nonprofits rely so heavily on public trust, even minor financial missteps or ethical oversights can damage credibility and affect funding. Effective internal controls reduce the risk of fraud, ensure compliance with IRS regulations and grant requirements, and help one’s team operate more efficiently. They also reassure donors, auditors, and board members that an organization is being responsibly managed.
Eight Essential Internal Controls Every Nonprofit Should Implement
Below are eight foundational internal controls that can significantly strengthen a nonprofit’s operations:
1. Segregation of Duties
Even with a small team, try to separate key financial duties such as:
- Approving expenses
- Handling cash or checks
- Recording transactions
If full separation isn’t feasible, introduce regular oversight by board members or designated reviewers to ensure accountability.
2. Monthly Bank Reconciliations
Reconcile all bank accounts at least once a month—ideally by someone not involved in day-to-day financial transactions. This simple step helps catch errors, fraud, or missed deposits early.
3. Cash and Check Handling Procedures
Establish clear and consistent protocols:
- Use pre-numbered donation receipts
- Deposit funds within 1–2 business days
- Restrict access to donation platforms and accounts
- Promote electronic giving to minimize cash handling risks
4. Dual Signatures on Checks
Require two authorized signers for checks over a certain threshold (e.g., $1,000). Avoid using blank or pre-signed checks and restrict access to online banking or payment systems based on roles.
5. Documented Financial Procedures
Develop a written financial procedures manual covering procedures, such as:
- Expense approvals
- Donation processing
- Payroll
- Asset tracking
This documentation supports consistency and is invaluable during staff transitions or audits.
6. Regular Financial Reporting
Generate and review financial reports monthly or quarterly. Compare actual performance to the budget and share reports with the board to inform strategic decisions.
7. Active Board Oversight
An organization’s board plays a key role in financial stewardship. Responsibilities should include:
- Approving the annual budget
- Monitoring financial reports
- Reviewing significant or unusual transactions
- Holding leadership accountable
8. Annual Budgeting
A thoughtful, realistic budget is a core internal control. A budget:
- Establishes spending limits
- Helps detect discrepancies
- Aligns financial planning with organizational goals
Implementing internal controls doesn’t have to be an all-or-nothing endeavor. Start with the basics, involve the board, and nurture a culture of transparency and accountability. As an organization grows, their internal controls can evolve alongside it—giving them a stronger foundation to pursue their mission with confidence.
Please contact us if you have questions about the information outlined above; our seasoned and experienced nonprofit professionals are here to help. You can also learn more about our nonprofit services by visiting our Nonprofit industry page.
About the Author
Chele is an Assurance Supervisor, where she specializes in serving nonprofit organizations and affordable housing entities. She provides audit, assurance, and advisory services to a broad range of mission-driven entities, including charitable organizations, foundations, associations, and social service providers and Low-Income Housing Tax Credit (LIHTC) developments.
In her role, Chele manages day-to-day audit operations, mentors junior staff, and works closely with clients to ensure timely and accurate financial reporting. Her technical knowledge includes Uniform Guidance audits and Generally Accepted Government Auditing Standards (GAGAS). Known for her thoroughness and collaborative leadership style, Chele is dedicated to building strong client relationships and delivering high-quality service. She is actively involved in staff training and plays a key role in process improvement initiatives within the firm.
Chele is also a member of the firm’s P.E.P. Squad, a group that organizes social events for employees within the firm to encourage employee engagement and
improving team morale.
