How to Prevent Non-Profit Financial Mismanagement

A 2013 Washington Post analysis of Federal filings from 2008-2012 found that more than 1,000 non-profit organizations in the U.S. checked the box on their tax forms indicating that they had discovered a significant diversion of assets, disclosing losses attributed to theft, investment fraud, embezzlement and other unauthorized uses of funds.

In addition to fraud and embezzlement, mismanagement of a non-profit’s funds can also lead to the type of headlines volunteers dread but are all too often seen today. The resulting loss of reputation for a non-profit can lead to decades of lost revenue and donations.

So what can you do to prevent this from happening to your non-profit?

In many cases, the financial mismanagement (or worse) occurred because there were not strong financial controls in place to serve as checks and balances.

It’s essential that the board and staff work together to put good financial controls in place. While there are hundreds of ways to approach financial controls, the tips below serve as a starting point:

  • Ensure that no one person has sole access to the organization’s money and record keeping.
  • Require two signatures on all checks.
  • Make sure that the Board treasurer receives copies of bank statements directly from your financial institution. (This allows the treasurer to review cleared checks to make sure they are a match to the amounts and payees that were authorized on the checks.)
  • If the organization holds credit cards that staff or volunteers have access to, ensure that there are policies in place to prohibit use for personal expenses and outline the documentation required (receipts, etc.) when the card is used.
  • Ensure that the board receives monthly financial statements and has a chance to review and discuss the information included.
  • On an annual basis, have your non-profit’s finances looked at by an independent party via an audit or financial review.

By implementing these policies, you are taking the necessary steps to safeguarding your non-profit’s finances and ensuring that it will be able to meet its mission for years to come. Look forward to the release of our e-book “Avoiding Non-Profit Financial Pitfalls” next week!