As the world moves from a COVID-environment to a post-COVID environment, nonprofit organizations need to consider how their financial reporting internal controls will be affected. While many things have changed, from working remotely to working in a hybrid environment to launching new programs and services, one thing that has always remained consistent is the importance of having strong internal controls in place.
Why are internal controls so critical?
Internal controls are designed to prevent, detect, and defer fraudulent financial reporting from occurring. When Covid forced nonprofits and for-profit companies into a remote work environment, all organizations had to adjust their controls to accommodate this drastic move. But now, as employees are returning to a mix of in-person/hybrid workplace situations, the internal control systems have had to change yet again!
With all that has been altered since March 2020, it is critical that every organization has established controls in place that remain strong – as these will be key to preventing and detecting any future fraudulent issues.
Ensuring Controls Remain in Place
The first step to ensuring that the controls in place will prevent and detect wrongdoing is the “tone at the top”. This attitude, which is established by the key stakeholders, must be very supportive of internal controls. Embracing controls from the top down demonstrates to everyone that internal controls are taken very seriously. It is important that key members and decisionmakers in the organization know that leadership is focused on deterring fraud, especially in a post-Covid environment.
Implementing internal controls involves discussions at both the board level and among the senior management team as well.
While board members do not typically address the organization’s daily practices, they do have responsibility for reinforcing their expectations for upper-level management’s behavior regarding instituting and supporting effective internal control practices. In fact, the topic of revisiting internal controls should be on the agenda at every board meeting, to reaffirm the importance of having appropriate controls and to preemptively address any potential issues. A common practice at many board meetings is to ask all members if they have any concerns at the moment.
In addition, upper management, as well as all staff assigned to deal with key areas, should discuss the details of all the organization’s key processes. These discussions should include, but aren’t limited to, identifying what controls are currently in place and how effectively they are operating. Strengths and weaknesses should be discussed. There should also be opportunities for collaborating on how to improve processes when necessary.
Staffing shortages are of particular concern when managing internal procedures for both the board and the leadership team. These challenges – which are in many instances the result of the pandemic will continue to be an obstacle for organizations of all sizes. They are challenging, but with strategic planning and a strong commitment, effective controls can be put in place to safeguard your organization.
Post-Pandemic Ideas: Maintaining Internal Controls
Here are two areas where proper procedures are essential.
Approval of invoices and timesheets
Approval of invoices and timesheets used to be something that was conducted in person. Since the pandemic many organizations have moved to a process of electronic approval of invoices and or approval by email.
However – here is a word of caution. When it comes to email, it is easy for approvals to be missed in a thread of emails. Your organization can move to a system of approvals or signatures through PDF. Adobe utilizes a time stamp function that includes the name of the individual giving approval. Another alternative product is bill.com, which is a bill paying platform that also provides a menu of the approval capabilities. These controls are efficient because they can be exported from the system, while still providing the same level of support as the in-person processes did.
Submission of proper grant reports
In today’s virtual environment, the final grant reports submitted to grantors may not be approved or signed by the responsible individual within the Organization. What organizations are doing to adjust for this oversight is to implement a shared platform that ensures all parties could approve their section. Google drive or other similar platforms may be used for this purpose. This control functions the same way as the in-person approval process and can be printed to show all required approvals and documentation. It is imperative that the Organization become and remain organized when submitting the grant documentation to ensure, the support includes all necessary approvals and invoices when requested by auditors or regulatory organizations. Internal controls are crucial to ensuring the funds your organization receives continue going directly to fulfilling your mission. Given the essential role played by internal controls in your organization, we would be happy to review the internal processes and controls you have in place today. It is our goal to help you help more people. Please don’t hesitate to contact us at.