22
Apr
10

There is a reason why we do this.

Non-profits exist to serve a need in society. Where we operate is usually dictated by where there is a need. I work for a Christian Relief and Development organization. To serve those in poverty we operate in many international locations from A to Z (literally . . . Afghanistan to Zimbabwe).
Countries suffering from extreme poverty often have other factors which make operating challenging. These range widely: political corruption, underdeveloped infrastructure, poorly educated workforces due to a lack of local university systems, economies highly reliant on cash, frequent/high-risk natural disasters, etc. I should add that this is not just a nation/country issue, serving those in need often means challenging locations within a country: very rural, dense urban, areas just devastated by an earthquake, etc. I approach this topic from relief and development standpoint, but many other organizational missions would lead to operations in similar contexts (such as: environmental and conservation groups, religious or missionary organizations, education, etc.)
This a bit of a paradox for the non-profit finance professional. We in the accounting and audit professions preach the importance of sound internal controls; yet our organizations are called to work in some of the most challenging settings in which to build a sound control environment. So, what are we to do? We cannot hold back aid from those suffering, simply because of control risks; nor can we flippantly ignore the stewardship responsibility which comes with public donations. Our organizations must hold these responsibilities in tension. As finance professionals we must lead this effort.
So, now what? That theory lesson sounds great but there are real control risks to address! I’m not going to pretend I have this all figured out, but here are some good places to start:
1) Hire good people – Organizations should screen potential employees well. HR controls on the front end can build a competent and reliable workforce. Don’t misunderstand me. Trust is not an internal control. Certainly good people, when presented with opportunity, and motivation, can (and do) commit fraud. But sound hiring practices can keep bad apples from coming through the door to begin with, lowering this risk.
2) Standardize policies – Fixed policies across the organization eliminates exceptions and ambiguity. This makes monitoring easier. Standard policies also allow the organization to define how difficult circumstances should be treated before they arise.
3) Communicate policies and expectations – Standard policies do no good unless staff know what they are and where to find them.
4) Monitor – monitoring for compliance with policy is key. When monitoring takes place you have both a detective and a preventative control. You can catch noncompliance and remediate, and when people know they are monitored they are less likely to violate policy or commit fraud. Monitoring can be done through a formal Internal audit function and/or through segregation of duties and review.

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2 Responses to “There is a reason why we do this.”


  1. 1 Eline nelson
    April 22, 2010 at 5:43 pm

    Such good insight to this post. Thank you.

  2. April 23, 2010 at 6:18 am

    We had tragedy strike our organization this winter. It was in that season there were times where we had to say, “forget internal controls”. We (accounting) made sure work around’s were in place, sometimes stepping into the processes to operate those controls, and when it wasn’t practical, forget about it. It was more important to care for our people than worry about an auditor’s deficiency (which we know can be easily explained away).

    It is easy to sometimes get lost in the effectiveness of internal controls and the environment in which they operate. But, we in the NFP industry need to be able to see beyond that occasionally and be sure the people are taken care of and our missions are being accomplished. When I stand at the gates of Heaven, I don’t think God will ask if I made sure our internal controls were operating effectively, but rather, did you care for my people; the broken, the hungry, the homeless, the lost.

    I know I’m guilty of missing this. I am continuly trying to find the balance in the paradox you referred to. It’s by no means easy and more often than not, I find myself stuck in legalism. Maybe that’s just the former auditor in me. Darn those auditors (haha).

    Just my thoughts. Excellent article! I’m looking forward to more.


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