Maintaining Internal Controls in a Digital Environment

by Denise Henning, CPA

Gone are the days of receiving bank statements, bills, invoices, donor contributions, and other correspondence mailed through the USPS. Today we download bank statements the day after the month ends, bills come in via email, contributions are made online, and most correspondence happens on a digital platform. Combining these new challenges with the chronic understaffing associated with nonprofits, you probably wonder how your organization can maintain internal controls in this electronic environment.

Here are the top five internal control areas most affected in this digital age.

1. Segregation of Duties: Adding third-party service providers can help with segregation and mitigate risk. Lockboxes for donations, a bill pay service, and payroll providers offer excellent ways to mitigate risk and add segregation.
2. Authorization and Approval AND Reconciliation and Review: These very similar control areas may be completed via email or digital signature by the same person, such as the Director of Finance or Executive Director. The approval should be stored with the transaction in the accounting system.
3. Physical Security: Petty cash should be secured in a lockbox with limited access. Physical checks should be locked and used sparingly. Automatic and online bill payments enhance security and reduce the need for “check runs.” Additionally, it is crucial that processes and controls are in place for electronic file storage and back up.
4. Accounting System and Third-Party Provider Controls: Restricting access to certain areas of these online systems can reduce opportunities for misstatement and fraud and goes hand in hand with segregation of duties.
5. Cybersecurity: Access to any software system should require dual authentication. This two-step process, commonly referred to as 2fA, confirms that the person accessing the system is a verified user.

Regularly reviewing and updating internal controls will ensure that organizational assets are safeguarded, financial statements conform with generally accepted accounting principles, and finances are managed with responsible stewardship.

Denise Henning is a CPA and former rescue mission CFO. She currently serves as a financial consultant and subject matter expert to Citygate Network members across the country.

The 300+ organizations in Citygate Network membership seek to move people in desperate situations and destitute conditions (i.e., hungry, homeless, abused, and addicted) from human suffering to human flourishing through the process of gospel-powered life transformation. If you or someone you love is in need of Christ-centered compassion and care, please visit our member locator page today to find a mission near you.