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IMPORTANCE OF INTERNAL CONTROLS

  Print Version

By Greg Heitkamp, CPA –Manager

Many people believe that small organizations cannot have good internal controls; however, that is not necessarily the case. Whether an organization is small or large internal controls are essential. Internal controls are key to protecting against fraud or human error. Controls consist of entity-level and activity level-controls. Entity level controls are internal controls that help ensure that management directives pertaining to the entire entity are carried out. Activity-level controls are the policies and procedures established to help ensure that management directives are carried out.

For organizations with limited staffing entity level controls are the most effective for preventing errors or fraud from occurring or going undetected. If these controls are properly designed and performed they can enable a small organization to have a good internal control system.

The following are controls that are essential for small organizations:

  • Management should have high integrity and ethical values and these should be communicated throughout the organization.
  • Management should be hands on in oversight activities. This could include reviewing reconciliations, accounting reports, and supporting documents.
  • The organizations should maintain a strong information technology system that can limit the errors and produce accurate reports.
  • The board of the organization should be hands on with their oversight responsibilities. This could include members of the board reviewing the check registers and support for checks, or even include a member of the board being a second signer on checks over a certain limit.
  • Personnel policies and procedures should be well written. These documents should be readily available to all employees.

All internal controls should be tailored to the size and complexity of the organization; however, it is important to remember that even small organizations can have good internal controls.

 

If you have any questions regarding the article above or any other issue affecting your not-for-profit organization please contact your Blue & Co. advisor or e-mail us at blue@blueandco.com or call us at 800-717-BLUE

 

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