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What Non-Profits Need To Know About Internal Controls

Updated on November 21, 2015

The news media is quick to react to emotional needs yet the financial needs of our non-profit have been grossly neglected. The news media has hounded big business and taxes and yet the one area where transparency could make a difference is training the volunteers who run our non-profits - training them on finances and how to protect the valuable and scarce assets that they govern and oversee.

In recent years, we have made "much needed" changes in the world of finance and consumer protectionism. For example, the Sarbanes-Oxley Act of 2002 is an important milestone for all organizations - large and small. Disclosures such as the recent FTC disclosure effective December 1, 2009 is another important milestone in providing transparency to the Internet users. But we can do more and we need more improvements to help protect ourselves and our community members. A simple suggestion on handling bank statement might forgo a tragic event for many of our non-profits.

Effective Internal Controls

Effective Internal Controls
Effective Internal Controls | Source

Parent Teacher Organizations

Parent Teacher Volunteer Organizations PTO
Parent Teacher Volunteer Organizations PTO

PTOs and Churches - Care of Scarce Funds

Dollars and Cents are the Care of Non-Profits - Churches and Parent Teacher Organizations
Dollars and Cents are the Care of Non-Profits - Churches and Parent Teacher Organizations | Source

Teachers

blackboard with the words printed teachers wanted
blackboard with the words printed teachers wanted | Source

Non-Profits Have Allot of Money Flow Through Their Hands

Non-profits have allot of money that flows through their hands.

As caretakers of these funds, it is important to recognize, you are protecting both the ending balances and the actual volume of intake and output.

Officers of non-profits have a fiduciary duty to both their fellow board members, the members they represent and the local, state or sometimes national community to protect the entire volume of proceeds and disbursements.

Non-Profits - The Volume - Not the Balances

Remember the actual amount of funds is the volume not the balances. You may end up with only $500 at the end of the month, but the volume even within 30 days could be 5 - 6 digits - 10,000-100,000 dollars.

Accountability for PTOs and Other Non-Profits

Accountability for the finances must be addressed beyond the Treasurer's report. The Treasurer of any non-profit no matter what the size works hard. As board members we must recognize this hard work and realize that hard work does not automatically account for integrity.

The risk for potential mis-use must be tempered by guidelines for oversight and review.

Internal Control Basics - Separation of Duties - Must Mandated for All Organizations

The treasurer should not receive the bank statements.

A Secretary of the non-profit corporation or the President should initially receive the bank statement and review the statement for reasonableness.

Were deposits made on a timely basis? If not, why not? Were checks issued, written fully authorized? These questions need to be asked on a monthly basis not just at year end.

If the treasurer is indignant and upset at this new change - go right ahead - blame me! But be sure to fully implement the changes. It is your duty as a board member.

Parent Teachers Organizations and Other Non-Profits

Parent Teacher Organizations (PTOs) and other non-profits need to implement these operational changes now! It is their duty to their members. Auditors, accountants, you must spread the word.

Fiduciary Duty

Fiduciary duty is the obligation to operate in the best interest of another party. You as a board member are leading the organization. An important part of your leadership is the finances - even IF you are not the treasurer. Help your board. Help your organization, implement difficult changes now before the changes are needed.

Help protect these valuable organizations. Help retain our trust in our non-profit organizations.

PTO - Back To School - Need for Internal Controls

colorful poster of back to school with multi colored pencils in a circle
colorful poster of back to school with multi colored pencils in a circle | Source

Parent Teacher Organizations At Great Risk

Summary - Ask for Changes Now to Help Your Local Non-Profit - School Board - PTO

The original request is credited to a parent who sadly has experienced problems in the past. It was her plea that prompted me to address this subject out on the internet. These recommendations are simple suggestions to consider for solutions to prevent future problems.

Recently I have sadly heard of churches falling victim to embezzlement by their congregation, their staff and even a priest. An auditor confided that the first meeting of the finance committee the head of their congregation confessed to taking funds. They confessed believing they would be caught. The reality was because no controls were in place, they probably would never have been exposed.

Asking for changes now can prevent problems in the future. It is your fiduciary duty, it is your organization, it is your community. It is an important operational change not just for parent teacher organizations but for all non-profit organizations including churches. If your church doesn't have a finance committee, do something today and prevent future problems by organizing a small committee to make operational changes to ensure the proper care of your congregational gifts.

Our Children Need Strong PTOs - Strong Internal Controls

picture of children on a beach with their backs to the camera
picture of children on a beach with their backs to the camera

Do you know of a non-profit that needs to improve their internal controls?

See results

© 2010 Ken Kline

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    • CelebrateUSA profile image
      Author

      Ken Kline 3 years ago from Chicago, Illinois

      FlourishAnyway,

      This is a story that is repeated time and time again - and every time it is sad. Sad for the victims, sad for the embezzler, and even sadder for the students at the school. The tax payers may foot the financial burden but it is the children that are the emotional victims. I wrote this at the request of my best friend and hope it continues to be heard and pray for changes to prevent this theft and damage for our children's future.

    • FlourishAnyway profile image

      FlourishAnyway 3 years ago from USA

      When my daughter was in elementary school, the president of the Parent Teacher Organization embezzled funds intended for the school. It certainly does happen. She was an otherwise upstanding woman in my neighborhood who despite outward appearances had fallen on hard times, and the temptation was apparently too great. Then she found her photo splashed allll over the news.