How to Safeguard Your Nonprofit’s Financial Systems
Even in a small nonprofit organization, you want to establish careful practices about how you handle money and financial documents. If you have a one-person office, creating all the following controls may be impossible, but you should try to implement as many of them as possible:
Store checkbooks, savings passbooks, blank checks, financial records, and cash in a locked, secure place.
Regularly back up financial records that you keep on computers, and store a copy off-site in a safe location.
Assign to different people the separate functions of writing checks, signing checks, reconciling bank accounts, and checking the canceled checks that return from the bank. If you can arrange for four different people to perform these tasks, that’s great. If not, maybe a board member can double-check canceled checks.
Look for accuracy and for anything that looks fishy, such as checks made out to vendors you don’t recognize, checks canceled by people or businesses other than those to whom they’re written, or canceled checks that are missing from bank statements. Embezzlement is rare but possible, and taking these steps is a way to detect it.
Require two signatures on checks or bank transfers over a certain amount. There is no standard amount for this practice: It depends on what qualifies as an unusually high transaction for your nonprofit. You can adopt this requirement as an internal policy and enforce it as a way of ensuring board oversight of large transactions.
Although your bank probably monitors large or unusual transactions and may contact your organization if it notices unusual activity on your account, these days few banks accept responsibility for enforcing a two-signature policy on customers’ checks.
Retain in organized files, subject to a document retention/destruction policy, all paperwork that backs up your banking documents. These documents may include personnel time sheets, box office or other records for tickets sold, receipts, and invoices. You may scan and retain them as electronic documents, if you wish. If you do so, back up the files and carefully protecting passwords.
Keep an itemized list of any furniture or equipment you purchase or receive as donations (including computers), noting the date they were purchased or received and their value.
Blue Avocado published a helpful article, Treasurers of All-Volunteer Organizations: Eight Key Responsibilities.