Financial controls for small teams

This guide is for treasurers, founders and volunteers who handle a small charity's money, often alone and without training. Financial controls sound like something for big organizations with finance departments. They're not. They're simple habits that protect your charity's money and protect you from mistakes and false accusations. After reading, you'll be able to set up practical controls for a team of two or more, reconcile your bank account each month, handle petty cash and cards safely, and give your board a clear monthly report.

Why controls matter, even when everyone is honest

Most people who volunteer for a charity are honest. Controls aren't about suspicion. They do three things:

• Catch honest mistakes early, like a payment entered twice or a donation never deposited.
• Protect the people handling money. If one person does everything alone and something goes wrong, they have no way to show it wasn't them.
• Build trust with donors, funders and auditors, who will ask how you manage money.

When money goes missing from a small charity, it's often because one trusted person did everything for years and nobody checked.

Segregation of duties, for tiny teams

Segregation of duties means splitting money tasks so that no one person controls a transaction from start to finish. The New York Attorney General's guidance on internal controls says procedures should ensure that no single person is responsible for receiving, recording and depositing funds, and writing and signing checks. That makes embezzlement and misuse of funds more difficult.

A big charity can give each task to a different person. A small one needs to be creative. Here's a practical split for a team of two or three:

If you truly only have one person handling money, add a second person who looks at the bank statement every month. Even that one check makes a big difference.

Two-signature rules

A two-signature rule means two people must approve payments over a certain amount. Write the rule in a short policy approved by your board. For example: "Any payment over $500 needs approval from two officers." Pick an amount that fits your size.

Some things to know:

• Don't count on your bank to enforce the rule. Ask your bank whether it checks for two signatures. Either way, the rule is your own internal control: the second person reviews the bill and the payment before it's made.
• For online banking, set up the account so one person creates a payment and another approves it, if your bank offers this. Ask your bank what they offer for nonprofits.
• Nobody should ever sign or approve a payment to themselves, including reimbursements.
• Never sign blank checks.

Bank reconciliation every month

A bank reconciliation means comparing your own records with the bank statement to make sure they match. It's the most important habit in this guide.

Each month:

1. Get the bank statement as soon as it's available.
2. Compare each deposit and payment on the statement with your books.
3. Note anything on the statement that isn't in your books, such as a bank fee, and add it.
4. Note anything in your books that isn't on the statement yet, such as a check that hasn't cleared.
5. Confirm that your book balance, adjusted for those timing differences, equals the bank balance.
6. Look for anything strange: payments you don't recognize, round amounts, payees you don't know.
7. Have someone other than the bookkeeper review and initial the reconciliation.

Most accounting software has a reconciliation tool. A spreadsheet works too.

Petty cash

Petty cash is a small amount of cash kept for small purchases. Many charities are better off without it, using a charity debit card or reimbursements instead. If you do keep it:

• Keep a small, fixed amount in a locked box.
• One person looks after it.
• Every payout needs a receipt or a signed slip.
• At any moment, the cash plus receipts should add up to the fixed amount.
• Someone else counts it from time to time.

Credit and debit cards

Cards are convenient and easy to misuse by accident.

• Issue cards only to people who need them, with a low limit.
• Write down what cards can and can't be used for. Personal use is never allowed, even if paid back.
• Require a receipt for every charge, with a note of what it was for.
• Someone other than the cardholder reviews the monthly statement against receipts.
• Cancel cards promptly when someone leaves a role.

Cash and donations received

Cash is the easiest money to lose. At events:

• Have two people count cash together, and both sign a count sheet.
• Deposit it quickly, ideally the next business day.
• Give receipts for cash gifts.

The monthly board financial report

The New York Attorney General's guidance says boards should get periodic reports, at least quarterly and preferably monthly, comparing actual income and spending to the budget, with timely explanations of differences. It also says monthly financial reports should be clear and give the board what it needs for proper oversight.

A simple one-page monthly report can include:

• Cash in the bank at the end of the month.
• Income and expenses for the month and the year so far, compared with the budget.
• A short note on anything more than a little off budget and why.
• Restricted money being held for specific purposes. See our guide on restricted funds.
• Upcoming big bills or deadlines, like insurance renewals or tax filings.
• Confirmation that the bank reconciliation was done and reviewed.

Keep it short and plain. A board that understands one clear page will ask better questions than a board buried in printouts.

Write it down

The New York Attorney General's guidance recommends written financial procedures, reviewed and given to the people who follow them. Yours can be two pages. Cover who can approve and sign payments, the two-signature amount, how cash and checks are handled, how reimbursements work, card rules, the monthly reconciliation, and what the board receives each month. Review it every year.

Controls checklist

• Money tasks are split so no one person does everything
• Payments over a set amount need two approvals
• Nobody approves a payment to themselves
• The bank account is reconciled every month and reviewed by a second person
• A board member who doesn't keep the books checks the bank account monthly
• Petty cash is small and balanced, or we don't use it
• Card charges all have receipts and are reviewed
• The board gets a one-page report every month
• Our procedures are written down and approved by the board

If you want someone with finance experience to review your setup, ask a member charity for help through the Exchange.