Category

Internal Controls

Feb 12
0

Trust, But Verify: Avoid Fraud by Maintaining Internal Controls

By | Accounting, Fraud, Internal Controls, MIP Fund Accounting, Nonprofit | No Comments

Trust, so the experts tell us, must be earned over time. In the workplace, it is earned by consistently performing one’s duties well and by successfully accepting ever-increasing responsibilities.

The nonprofit workplace, like the for-profit workplace, works best in an atmosphere of trust and mutual respect among one’s colleagues. Without it, the workplace can be hostile, unfriendly, and uncomfortable.

But there is a fine line between suspicion and performing due diligence. Nonprofit organizations should guard against allowing trust to blindside them to the potential dangers of fraud and theft in the workplace.

A Cautionary Tale of the Ramifications of Blind Trust

One story that stands out is the story of Marge (not her real name), who worked at a large nonprofit organization. She was like a second mother to the staff. Honest, always willing to work extra hours, diligent in her job duties in the accounting department, Marge was trusted with managing many areas of the organization’s finances.

Although the organization had internal controls in place, they were often waived for Marge and other senior staff members who were so well-regarded and trusted that they weren’t questioned when they dodged the procedures. Marge was especially trusted and valued and did not have anyone present when she counted out petty cash or handled the checkbook.

One day it was discovered that money was missing from the petty cash. An audit revealed that small amounts of money had been taken from the petty cash box as well as from the checking account. Because Marge controlled both, she could make slight adjustments in the entry ledgers to avoid suspicion for a long time. It took the auditors only a short while to uncover the discrepancies and for Marge to confess that her lottery ticket habit had become a necessity and that she had been stealing ever increasing amounts to fuel an obsession with gambling.

Is Marge an isolated case? We think not, and a quick survey of the various nonprofit journals reveals similar patterns of fraud. Fraud doesn’t occur in isolation. It tends to occur when gaps are left within the internal controls that are intended to prevent such situations. In this case, trust and friendship overrode common sense. Exceptions were made that should not have been made. The result was an organization poorer for the loss of both money and a trusted employee who had to be let go when the truth was revealed.

Preventing and Identifying Fraud

Trust is a wonderful thing and a valued commodity in the workplace. That said, it should not preclude the use of standards, internal controls, and audits.

  • Preventing Fraud
    • Standards are the accepted norms for an industry. Accounting standards, security standards, and workplace standards can be codified and recorded in written manuals provided to all employees. Everyone can then be held to the same shared standard of conduct and behavior.
    • Internal controls are the processes and procedures put into place around access to the organization’s finances. These controls should be written down and shared among staff. Training sessions and refresher training session are also important to ensure consistent understanding of the controls among everyone.
  • Recognizing Fraud:
    • Audits bring in outside consultants such as CPA firms, well-versed in accounting for nonprofits to examine your organization’s financial records, provide recommendations, and discover discrepancies.
    • Provide staff with an anonymous method to report incidences of fraud to their supervisors or to the managers in your organization.

Trust doesn’t have to be blind. Assuring people that their work matters, listening to their ideas, implementing their suggestions and other positive examples of trust can build bonds among workers that engender loyalty to your organization. Don’t leave your nonprofit open to fraud or theft due to blind trust. Trust, but verify, and stick to accepted norms and standards of behavior and internal controls to prevent problems before they occur.

About Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

Nov 27
0

Internal Controls & Abila MIP Fund Accounting™

By | Accounting, Audit, CPA, Internal Controls, Nonprofit, Uncategorized | No Comments

Internal controls provide safeguards against losses, thefts and mistakes. An old-fashioned way of keeping internal controls may be to have one staff member count out the petty cash box while another watches the process. The watcher in this case is the internal control. An extra set of eyes on the counting process keeps the person holding the cash in hand from making “mistakes”, whether intentional or not, when it’s handed over for counting.

Implementing internal controls can be easy! Our “Internal Controls for Nonprofits: Best Practice Resource Guide” can help your nonprofit establish best practice principles, policies, and procedures.

In larger, automated accounting systems for nonprofits, such as those that run Abila MIP, internal controls are built into the system. By automating many of the financial processes, it becomes more difficult for someone to circumvent the system and steal from your nonprofit.

A publication from the Virginia Society of Certified Public Accountants brings home the point that good internal controls, through the use of Abila MIP fund accounting and processes around them, can help prevent loss and “keep honest people honest.”

Safeguards Against Loss: Simple Internal Controls

The first and best internal control is to avoid handling cash when at all possible. It’s not that cash is bad, it’s just that it can be “lost” more easily than money that is already in the bank account and tallied in Abila MIP fund accounting.

A system of checks and balances keeps careful watch over your finances. A few internal controls to keep losses to a minimum:

  1. Lock checks and cash in a safe or drawer both during business hours and afterwards.
  2. Monitor access to the keys.
  3. Make it a rule that all employees, regardless of their job title or function, must have another employee present when opening the safe or cash drawer, and counting out money.
  4. Don’t let checks and cash pile up in the office. Make a bank deposit when the threshold reaches a certain amount.
  5. Use timecards to monitor hourly workers’ wages.
  6. Have a manager review timecard information regularly to ensure no one is ‘padding’ the hours.
  7. Do not let anyone borrow funds from the organization’s accounts for personal reasons, or use business credit cards for personal reasons.

Acting Swiftly

It is important to have written policies in place regarding fraud and theft so that you can take the appropriate steps to document, correct, and if necessary, terminate employees who circumvent or ignore internal controls. Depending on the circumstances, your organization may also have a zero-tolerance policy for theft, and a written policy regarding grounds for termination should include such information.

Take steps to create policies and internal controls for your staff. Train and teach them their expectations. Set in termination policies in place. Know who is handling your accounts, who has access to cash and checks, and how such resources are handled. Keeping track of your finances using good fund accounting software is a way to detect fraud and act swiftly.

Abila MIP Fund Accounting

Abila MIP Fund Accounting includes fraud protection and analysis within the system, so you can use the data within it to detect patterns of losses, analyze data, and prevent fraud.

Most losses do not occur in isolation. People find that if they can get away with one theft, they return and try again. This leaves a footprint or a recognizable pattern. Data ran from your fund accounting system may be able to display such patterns so that you can take immediate, corrective action.

At Welter Consulting, we want to help our nonprofit customers prevent losses and fraud. By utilizing good nonprofit fund accounting software, such as Abila MIP, you can keep careful track of all of your accounts and detect suspicious activity quickly.  Click to learn more about Abila MIP fund accounting.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.