Basic Internal Controls that every All Volunteer Organization (AVO) Should Have
Establish Joint Responsibility: More than one person should be involved in every activity and transaction that involves cash, other AVO assets, and liabilities/debts. This can be accomplished in a variety of ways based upon the specific activity or transaction and the officers and volunteers available to help. This will typically entail a modest level of extra effort and/or inconvenience but the commitment is almost always worth the increased prevention of honest errors and deliberate abuse that can damage the organization, its officers/members/volunteers, its benefactors, the beneficiaries, its work and the community it serves. Be creative to reduce the burden; there are many ways to implement this basic control with little imposition and recommendations on specific activities and transactions are included in relevant sections of this resource.
Adopt and Publish the Rules: Written policies and procedures for the AVO should be developed and made readily available to all officers, members and volunteers. In addition, responsibilities and specific levels of authority and authorization for everyone involved should be defined to which all must adhere. New officers, members and volunteers should be informed of all policies, procedures and limits of authority by providing and explaining the written documents as soon as possible after they join the work of the AVO. All internal controls, such as the ones found in this resource, that have been adopted should be included in the written policies and procedures of the AVO.
Live by a Budget: The AVO should adopt an annual budget. The treasurer should include in his or her monthly report to the board how much has been collected or earned toward budgeted receipts and revenues along with how much has been spent or committed to be spent toward each budgeted expense. At the end of the year, a final tally of budget versus actual should be produced and presented to the board at the first board meeting of the next year.
Require a Treasurer's Report at every Meeting: The Treasurer should provide a written report to the secretary for the minutes at each board meeting. The report should be read to all in attendance and if someone wants a written copy arrangements should be made to provide it. The report should include at minimum: year-to-date receipts/revenues and payments/expenses compared to budgeted amounts; the balances in all bank accounts; the balance of cash on hand; and any bills that have been received but not yet paid. In essence, the format of the report should communicate the year-to-date profit and loss of the AVO in addition to the receipts and disbursements since the previous treasurer's report, not just the latter.
Prepare Monthly Bank Reconciliations: A monthly bank reconciliation on each bank account should be prepared by someone other than the treasurer, anyone who handles cash receipts and bank deposits (if different from treasurer) and anyone who pays bills by writing checks (if different from treasurer). This could possibly be another officer or a volunteer. The Treasurer should provide transaction details (deposits & checks) to the person who will reconcile the account and the bank statement should be mailed by the bank directly to the person who will prepare the reconciliation (or that person should have electronic access to the bank statement). The person who reconciles the account should report on the most recent reconciliation at each board meeting. An explanation of how to prepare a bank reconciliation and a template to do so are included in the section of this resource entitled Bank Account Reconciliations.
Have the Financial Records Audited: Audits by Certified Public Accountants are expensive and most AVOs will not have the resources to afford an audit by a CPA. However, this is one of the best protections against undiscovered honest errors and deliberate misuse of AVO resources and if at all possible an audit by a CPA should be arranged. In a case where an audit by a CPA is not feasible, the AVO should have a yearly internal audit done by a small group of members or volunteers (a two- or three-person audit committee) of the AVO who are not officers and do not have any significant responsibilities for handling cash, other assets, liabilities, making payments or deposits, etc. Recommendations on how to perform an internal audit are included in section Audits of this resource. Sometimes an AVO cannot afford an annual audit by a CPA but can manage to pay for one every few years (for example, every third year). If this is possible the AVO can combine both approaches to audits, an independent audit by a CPA every few years and internal audits by an audit committee in the intervening years. If and whenever a CPA audit is performed, the CPA should report the results to the audit committee who can then inform the board of the findings.
The Treasurer should not have Conflicting Authority: The Treasurer of an AVO should never at the same time hold another office (such as President) of the board, even temporarily.
Rotate the Treasurer Responsibility: If at all possible, the Treasurer should have a term limit of no longer than three years and, if reelected, should have at least a two-year period between terms.
Never have only one Person Count Cash: All cash receipts should be immediately counted in presence of at least two people and the tally should be signed by all present. Cash should be deposited in a bank account as soon as possible.
Have Mail Opened by Two People: If at all possible, all mail to the AVO should be opened in the presence of two or more people. This is quite often difficult but should be seriously considered if donations or other receipts are routinely received by mail.
Endorse all Checks upon Receipt: All checks received should immediately be endorsed on the back "For Deposit Only" to the AVO name with the bank account number of the AVO.
Make all Payments by Check: All payments made by the AVO should be by check. Never pay bills with cash taken out of the receipts of an event.
Require Two Signatures on Checks: Checks should require the signatures of two officers. This may not always be practical but should be the case as much as possible. In order to handle smaller expenditures a checking account with a small balance that is never exceeded can be established where only one signature is needed. Also, a small petty cash fund can be utilized. The policies, procedures and processes for single-signature checking accounts and petty cash accounts are presented in the Payments Made by Check and Cash section of this resource.
Avoid the use of Credit and Debit Cards: The use of credit/debit cards is rife with the potential for abuse. If at all possible, the issue of credit cards for use by an AVO should be avoided. If there is an unavoidable need for the issuance and use of a credit card, a provider (bank/credit card company) should be secured that will send an email notice to an AVO member who does not have access to the card when: a transaction in an amount above a prescribed limit has occurred; a number of transactions in a day exceeds a prescribed number; and unusual transactions (for example, payments to a clothing store) have occurred. Monthly statements should be sent to someone without access to the card and should be reconciled just like bank statements.
Two Rules of Internal Controls that Help: Each AVO is unique in one or more ways. This resource will not be able to address every situation and circumstance that may be a part of the activities and operations of an AVO. Therefore, in conclusion to this list of basic controls that every AVO should have, it is suggested that the leaders of an organization adopt as a mindset two general rules of internal control used by accountants and auditors that can guide the development of checks and balances in unique situations.
- Segregation of Duties – This is a variation of the "more than one person should be involved in every transaction" basic control described earlier in this section. This states that the recording of the transaction (typically the Treasurer) should be separate from the authorization for the transaction (typically the President or a committee of the AVO) and both should be, if possible, separate from the handling of the transaction itself (typically a volunteer or group of volunteers).
- Safeguarding of Physical Assets – Typically this means limiting access to assets so that only authorized individuals have access for only those responsibilities specifically approved for them per AVO policies. Examples would include: keeping the checkbook and blank checks locked up; keeping the keys to vehicles, buildings and rooms under specific control; keeping credit/debit cards in the hands of only those who are authorized to use them and preferably locked up when not in use; and keeping titles to vehicles, buildings and similar assets locked up.
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