| Winter 2006 |
Nonprofit Advisor
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Are You Ripe for the Picking?
Strong Internal Controls Can Help
When it comes to fraud perpetrated against an organization, many
nonprofits are ripe for the picking. Fraud seems to occur most
frequently at midsize or small charities, where adequate financial
controls are often non-existent. Job duties such as opening the
mail, logging donations and balancing the checkbook are concentrated
among only a few people. And funds are tight, discouraging employers
from performing background checks on prospective job candidates.
Procedures to Improve Internal Controls
Fortunately, solid internal accounting controls can help detect or prevent
fraud at any size organization. Consider these basic steps:
Perform background checks. Screening new hires is critical and should
be done by a senior-level person. The screening process should include reference
checks as well as questioning the applicant's motives, background and past work
history.
Put collections under the control of two people. Additionally, checks
should be restrictively endorsed at the time received and deposited daily. As an
alternative, consider using a bank lockbox to directly receive mail with checks.
Make disbursements by check and keep support for the disbursement on file.
In addition, dual signatures should be required on all checks over a
predetermined amount, and authorized check signers should not have access to
accounting records.
Permit only someone other than the person in charge of record keeping to
receive unopened bank statements. If the size of your organization prevents
a separate person from preparing the bank reconciliation, the contents of the
bank statement should be reviewed by a key executive - or in particularly small
organizations, a board member - before the account is reconciled.
Have an executive personally approve all adjustments and write-offs.
This prevents a bookkeeper from misappropriating accounts receivable or other
assets and then covering up the theft by writing it off.
Establishing good internal controls is a vital defense against fraud and it
typically requires more of an investment of attention than money.
Editor's Note: Bober, Markey, Fedorovich
& Company frequently works with clients on matters such as
this. Please call your partner / manager contact if you would like assistance in this area.
The Nonprofit Advisor is produced quarterly by Bober, Markey, Fedorovich
& Company's Nonprofit Services Team. If you would like additional information about the services that we can provide to nonprofit organizations, please call or email our team leader, Lori A. Sheets, CPA at 330.762.9785 or
lsheets@bobermarkey.com.
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