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.

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