How can you create a cost-effective internal control system for your nonprofit?

2 Establish clear policies and procedures

The second step in creating a cost-effective internal control system is to establish clear and consistent policies and procedures for your financial activities. These policies and procedures should define the roles and responsibilities of your staff, board, and external stakeholders, such as donors, auditors, and regulators. They should also specify the standards and expectations for recording, reporting, and reviewing your financial transactions and documents. You can use templates or examples from other nonprofits or professional associations to help you develop your own policies and procedures, and customize them to suit your organization's needs and goals.

4 Use technology wisely

The fourth step in creating a cost-effective internal control system is to use technology wisely to support your financial management and budgeting. Technology can help you automate, streamline, and simplify some of your financial processes and functions, such as accounting, payroll, invoicing, or reporting. It can also help you improve your data security, backup, and recovery, and enhance your communication and collaboration with your staff, board, and external stakeholders. However, technology also comes with costs and risks, such as maintenance, training, compatibility, or cyberattacks. Therefore, you should carefully evaluate your technology needs and options, and choose the ones that are appropriate, affordable, and adaptable for your organization.

5 Monitor and evaluate your performance

The fifth step in creating a cost-effective internal control system is to monitor and evaluate your performance regularly and systematically. This means that you should track and measure your financial results and activities against your budget, goals, and standards, and identify any gaps, issues, or opportunities for improvement. You should also solicit and incorporate feedback and suggestions from your staff, board, and external stakeholders, such as donors, auditors, and regulators, and address any concerns or recommendations. By monitoring and evaluating your performance, you can ensure that your internal control system is effective, efficient, and aligned with your organization's mission and vision.

6 Train and empower your staff

The sixth and final step in creating a cost-effective internal control system is to train and empower your staff to understand and follow your policies and procedures, and to perform their duties and tasks with competence and integrity. You should provide your staff with adequate and ongoing training and guidance on your internal control system, and update them on any changes or developments. You should also encourage and reward your staff for their compliance, performance, and innovation, and foster a culture of trust, transparency, and accountability. By training and empowering your staff, you can enhance their skills, motivation, and commitment, and strengthen your organization's capacity and reputation.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?