With limited resources and tightening budgets, establishing effective internal controls can become tricky. Controlling the cash flowing into and out of the organization is supremely important and can generally be done effectively with the personnel and board members that are already in place. The single most important tenet of a control structure, especially in cash disbursements, is to limit opportunity by segregating duties. Think about the person that performs the most duties related to cash disbursements in your organization. What happens if that person receives some added motivation such as an ill family member with medical bills or a spouse losing a job? Could they rationalize the need for additional funds and ultimately cause damage to your organization? As honest as you perceive people in your organization to be, segregation of duties helps keep these people honest. 

The following are a list of helpful controls that limit the ability to perpetrate and conceal theft of cash. Read the rest of this entry »

Organizations disburse funds in order to pay for costs incurred by the entity. An operating expense is an on-going cost to run the organization. Operating expenses can be broken out into program services expenses and supporting services expenses. Program service expenses are expenses of an organization which are directly related to the organization’s non-profit purposes. Supporting services include management and fundraising expenses. Operating expenses can include salaries and wages, communications or telephone, and rent. Non-operating expenses are expenses not directly related to the main business, such as insurance, interest, repairs and maintenance, special events, fundraising and depreciation.

Expenses are incurred, for cash basis purposes, when a check is written or cash is paid by an organization to another organization or person for services or goods. To record an expense, you debit the expense account related to the purpose for which a disbursement is made and credit the cash account from which the cash is paid or check is written.

Recording expenses properly and keeping detailed records of the types of disbursements an organization makes is very important. Expenses are used in determining how the funds received by the organization are being used and whether those funds are being used for the entity’s exempt purpose. It is also important to monitor restricted contributions to determine that the donor’s restriction has been met. The way an organization spends the money received can impact future fundraising efforts.

Written by Lauren McComic, senior auditor