Internal Controls at Nonprofits
All nonprofit board members have certain inalienable responsibilities when they accept a position to serve on the board of directors. These responsibilities are grounded in both statutory and common law. The overarching responsibility involves a fiduciary one to act in the organization’s best interest. This includes the duty to administer to and protect the overall financial health of the nonprofit organization. Internal controls are the mechanism by which nonprofit organizations achieve this and other essential goals.
The Charities Project has assembled a collection of resources on internal controls at nonprofits. This list includes state attorneys general and member organization resources, which provide general information for nonprofit board members on establishing internal controls and maintaining and protecting the financial health of a nonprofit organization. In addition, various articles and policy studies are included, which provide a contextual framework on internal controls and nonprofit governance generally.
Charities Project Resources
The Charities Project has created and collected numerous resources which discuss nonprofit governance generally, including internal controls and financial health of nonprofits. Here is a short list of some of those resources:
Moderated by Charities Project Director Cindy M. Lott and featuring the participation of Julie Floch, a Partner in the Not-For-Profit Services Group at EisnerAmper Accountants & Advisers, this webinar introduces viewers to the critical role certified public accountants play in helping a nonprofit board maintain the integrity of its organization. Topics include:
- Accounting 101, including basic accounting terminology and definitions
- The Financial Accounting Standards Board
- Generally Accepted Accounting Principles (GAAP) versus Tax accounting
- The audit process
- Non-cash donations and how they are reported
- Form 990
- Endowment accounting under GAAP
State Attorney General Resources
- California -
The California Attorney General's office has assembled a webpage of resources for those seeking assistance in operating and managing a nonprofit organization. It should be noted that resources listed on the webpage are not an endorsement by the California Attorney General's office of the organization and its webcontent.
- Indiana -
This Indiana Attorney General’s office presentation on the duties and legal obligations of nonprofit boards under Indiana law touches on directors' obligations to implement internal controls that guard against fraud, self-dealing, and waste at a nonprofit organization.
A checklist created by the Indiana Attorney General's office to guide nonprofits on best practices in governance, financial management and mission.
- Massachusetts -
This Massachusetts Attorney General's office webpage provides information for existing nonprofits, including audits and reviews, dissolving a charitable entity and overseeing charitable funds and fundraising.
- Minnesota -
- New York -
New York State Attorney General's website providing resources and information for charitable organizations, grantmakers, fundraisers and the general public. The site also includes links to the two aforementioned booklets.
Financial Literacy for Board Members
- Jennifer Chandler, Nonprofit Knowledge Matters: Having Fun With Nonprofit Financial Literacy, National Council of Nonprofits, (Apr. 16, 2014).
- Nonprofit Knowledge Matters: Financial Literacy 2.0, National Council of Nonprofits, (Dec. 7, 2011).
- Kevin McConnell, Make Sure Your Board and Staff Are Financially Literate, Massnonprofit News, (Oct. 1, 2014).
- Fiancial Literacy and Knowledge in the Nonprofit Sector, The Center on Philanthropy at Indiana University, (Feb. 2012).
Study conducted by the Center of Philanthropy and sponsored by the Moody's Foundation looks at financial literacy amongst nonprofit boards at over 500 nonprofit organizations.
Article looks at Pennsylvania Attorney General Kathleen Kane's investigation of a Pennsylvania nonprofit for apparent mismanagement of millions of dollars.
Good governance of a nonprofit often begins and ends with appropriate financial oversight and internal controls. Failing to have established procedures and controls in place are a recipe for a nonprofit’s demise. This cautionary tale played out in Vermont, when Vermont Attorney General William Sorrell filed suit against a Vermont nonprofit for failing to account for finances, and exhibiting a general lack of financial oversight and poor governance. The suit alleged, for example, that the executive director of the nonprofit wrote and authorized her own paychecks on an irregular basis for the last two years “(1) paying herself several times during the same two-week pay period” (2) paying herself weeks or months in advance of a pay period and (3) paying herself multiple times for the same pay period.”
- Patricia A. O'Malley, Internal Controls, Nonprofit Accounting Basics website, (2014).
This Greater Washington Society of CPAs website provides board-members and employees of nonprofits essential information on the basics of nonprofit accounting and management, including establishing internal controls for your organization.
- Putnum Barber, Robert Fleming, “Controls” for Small Nonprofit Organizations: A Guide for Board Members, Idealist.org and Clark Nuber P.S. (2011).
- Internal Controls Checklist, Compass Point Nonprofit Services, (2014).
- Preventing Fraud and Embezzlement in Your Nonprofit Organization, Venable LLP, (Nov. 2014).
- Protecting Assets with Sound Internal Controls, Minnesota Council of Nonprofits, (2014).
- Vernon Waldren, Our Executive Director is Embezzling, Blue Avocado, (Dec. 23, 2009).
Conflict of Interest Policies
Webpage provides tips and resources on establishing a conflict of interest policies, including sample policies.
Nonprofit Governance Generally
ABSTRACT: Nonprofit boards are increasingly a focus of those interested in greater accountability and transparency, including policymakers, media, and the public. To help inform current policy debates and initiatives to strengthen nonprofit governance, in 2005 the Urban Institute conducted the first ever national representative survey of nonprofit governance, with over 5,100 participants. This report presents survey findings, discussing: relationships between public policy and governance, factors that promote or impede boards' performance of basic stewardship responsibilities, board composition and factors associated with board diversity, and recruitment processes, including the difficulty experienced by many nonprofits in finding members.
- Woods Bowman, Nonprofit Accountability and Ethics: Rotting from the Head Down, Nonprofit Quarterly, (Oct. 26, 2012).
- Ellis Carter, Top 15 Non-profit Board Governance Mistakes (From a Legal Perspective), CharityLawyer Blog, (Oct. 5, 2009).
- Deborah L. Rhode & Amanda K. Packel, Ethics and Nonprofits, Stanford Social Innovation Review, (Summer 2009).