“Ahhhhh no, do we really NEED this?” This is usually how someone asks me the question: Why are financial controls important for nonprofit organizations?
What’s the problem?
The reason why I often hear desperate ‘ahhhhhhhs’ is that most nonprofits are small. So most of the finance, contracting, procurement and similar tasks end up on the desk of the director who is already overloaded. And who’s someone who wants to change the world – not be stuck with paperwork. The thought of adding anything to this burden is simply too much for them.
Yes, so why do it?
Donors and other investors want to support the core work of a nonprofit. And they want to feel sure that their money is used wisely and properly – for the purpose for which it was sent. So they’re looking for nonprofits to give assurances on that. And the easiest way to do that is through having systems and controls in place.
Do nonprofits need this just for donors?
Maybe it feels like you’re designing systems and controls just for your funders. But imagine what would happen if you did not have a grant-making donor. What if you receive a large amount of money from an inheritance, for instance. And what if the deceased did not stipulate anything about the use of this money?
What do you do when you have money?
You make plans!
You estimate how much money you’ll need to execute the plans, so that you know how many plans you can implement from that money, right?
Nonprofits want to know, too!
So in the case that your nonprofit has money without a donor asking for controls – what do you do?
You design your own controls!
Because you’ll want to know how it’s going with the plans and the money. Are you able to execute the plans as you thought? What money do you need to achieve the impact you want to see? Does the budget you made make sense? Or can you learn something from this round of implementation?
Even if you’re sort of free to use the money however you want with no-one checking – you’ll be checking yourself! And you’ll not only be interested in how much you spent versus the budget. You’ll also want to know that you got the best value for the money spent, the best offers. And you’ll also want to make sure that no money was lost in fraud or corruption.
Practically, you’ll also want to know for sure that you paid everyone who worked for you or delivered a good or service properly. And that all these transactions are recorded in your accounting system in an understandable manner.
And because a director cannot check all the details of each and every transaction personally, you’ll want to have controls in place. So that the director can focus on doing some checks, and can rely on the systems and controls in place that have been executed before things reach their desk.
How I can help
Get simple steps to set up and organise your finance & admin foundations guidance by me with my bundle of six simple and short workshops: https://www.changingtides.eu/financeandadminbundle
These workshops are part of the bundle. You can also buy them individually and build your system step by step.
- Set up your financial processes: https://www.changingtides.eu/financialprocesses
- Understand important basics of bookkeeping for nonprofits: https://www.changingtides.eu/bookkeepingfoundations
- Be sure you are keeping all the documents you need for project donors, auditors, or officials: https://www.changingtides.eu/documentationfornonprofits
- Plan your cash flow for a year: https://www.changingtides.eu/cashflowfornonprofits
- Get a feel for how time sheets can be helpful to everyone in your nonprofit and set them up straightaway: https://www.changingtides.eu/timesheetsfornonprofits
- Learn how to calculate the price of time spent of your team members, including allocations for general costs that are used in different projects: https://www.changingtides.eu/feesfornonprofits
Want to know more and ask questions?
If you want to discuss this more, join my nonprofit support community and get input from a wide range of peers and from myself!
Here is how you can join my free nonprofit support community
You can join my free nonprofit support community on the Heartbeat platform here. This group is a safe space for open exchange and discussion on potentially sensitive topics like boards, nonprofit management, fundraising, etc.
You can visit the community via a browser or via an app. Here is the link to download the Heartbeat chat app in the Google Play store.
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