NonProfit Management/Governance – Avoiding Fraud – Internal Controls

Nonprofit boards do not have  effective ways to reduce nonprofit fraud is a common misconception among nonprofit board directors.  Board directors should be familiar with seven audit-related topics.  In today’s vigilant environment, the board must be involved.  For more background on these issues see: Eugene Fram & Bruce Oliver (2010), ” Want to Avoid Fraud?  Look to Your Board, Nonprofit World, Vol. 8, No. 5, pp 18-19.

1. DETERMINE WHETHER OR NOT INTERNAL CONTROLS ARE ADEQUATE?  The organization’s control system needs to be divided into operating functions.  Then each operating function must be performed by someone different so that each person checks the other’s work.  For example, a volunteer completes a gift shop sale, but a  finance person, who is bonded, deposits  the cash to the bank account.  In addition, all financial people need to take scheduled  vacations so that another employee is responsible for the vacationer’s work for at least two consecutive weeks a year.

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