CEOs or executive directors are focused on meeting the mission of the nonprofit. Finance directors and CFOs often find it a challenge to get the attention of the organizational leader to ensure strong internal controls are in place. This stewardship of resources by the CEO often goes unfulfilled as other, more seemingly pressing duties take day-to-day precedence. I recently ran across an article on the Greater Washington Society of CPAs Educational Foundation website that gave a very simple list of ways to put the monitoring of internal controls in front of the CEO.
- Read, and more importantly study, the monthly financial reports. The repetition of this exercise will make the task easier every month. Accounting at most non-profits is pretty predictable and if something does not make sense there likely is something wrong. Preparing a summary of variances and unpredictable items in the monthly financials is helpful for growth and understanding when the financial reports are not the strength of the CEO.
- Review the monthly bank and investment statements and reconciliations. CEOs should be given online access to bank accounts so they can randomly review activity during a month or quarter. In addition, the CEO should review the monthly bank reconciliations. The intention should not be to review every detailed transaction but again to look for anomalies and also for the finance department to be aware that someone else will be looking at cash transactions.
- Review payroll reports on a periodic basis. Just as it is important for the CEO to have access to reviewing cash transactions the CEO should review payroll transactions for reasonable wages and to make sure the staff paid are on staff.
- Review organizational credit card activity and expense report on a periodic basis. These are areas where it is pretty easy for fraudulent transactions to occur. Again, with staff and the finance department aware that the CEO is reviewing transaction activity in these areas it can prevent or make fraudulent purchases less likely to occur. There are several applications available to streamline the submission of credit card activity and expense reports and include extensive reporting and approval processes.
- Listen to external and internal feedback from constituents and staff. The finance department interacts with both of these groups and the CEO is in a great position to solicit feedback on the performance and interactions with the department.
As finance directors we hear these requirements from the auditors every year and many of us experience the same challenges in engaging the CEO in understanding and following through on the stewardship requirements of that position. Maybe starting with these simple internal control steps will increase that engagement. A CEO does not need to be a finance expert; they hire the finance department for that. However, having an approach that while reviewing the 5 simple controls listed above, “If something doesn’t make sense, it’s probably a good idea to question”, is a positive step toward engagement.