Welcome to the 4th part of the Risk series! We hope that you have found this series helpful for you and the life of your church.

If you haven’t read the first few parts of the risk series, you can do so via our News and Blogs link: https://www.benkorp.com/news-blogs/

Whenever there are people involved there is risk. We cannot be in complete control of what is going on at all times, but there are things that you can do to reduce that risk.
Here is an outline of internal controls pertinent for a church or NFP.
We suggest you use it to review the internal controls of your church or organisation.

 What are Internal Controls?

Internal controls are systems of policies and procedures that:

  • safeguard assets,
  • ensure accurate and reliable financial reporting,
  • promote compliance with laws and regulations, and
  • achieve effective and efficient operations.

Good internal controls will:

  • help align the performance of the organisation with the overall objectives – through continuous monitoring of the performance and activities
  • encourage good management–allowing management to receive timely and relevant information on performance against budgets, as well as key figures that can indicate variances from budgets
  • ensure proper financial reporting – maintaining accurate and complete reports required by legislation and management, and minimising time lost correcting errors and ensuring resources are correctly and efficiently allocated
  • safeguard assets – ensuring the organisation’s physical, intellectual property and monetary assets are protected from fraud, theft and errors
  • deter and detect fraud and error – ensuring the systems quickly identify errors and fraud if and when they occur
  • reduce exposure to risks – minimising the chance of unexpected events.

Some great Internal controls are:

  • Appropriate division of Duties
  • Qualified Personnel
  • Sound, written procedures for authorising, recording and reporting transactions
  • Actual performance consistent with the first 3 principles

 

Appropriate Division of Duties

In the context of financial control this means, different people:

  • Authorising/approving transactions
  • recording of transactions; and
  • custody of assets (money and other property).

The basic point to remember is that no single person should handle a transaction from beginning to end. This means if there are at least two people in an office on any given day, there can be some division of duties.

Qualified People with clear duties

All personnel should know clearly what they are supposed to do and how they are supposed to do it. Additionally, people should understand how their duties fit in with the duties of others in the organisation

Sound written Financial Policies and Procedures

Financial Policies and Procedures must be developed and documented. At minimum, these should include at least the following:

  • Documented Financial Policies and Procedures must be reviewed annually
  • Financial Statements audited or reviewed by qualified practitioner annually
  • There must be an appropriate separation of duties as discussed above.
  • All Payments must be authorised by two approved people
  • There must be appropriate Documentation for every transaction
  • Well considered and approved Budgets must be in place before the budget period commences
  • The financial performance of your church must be reviewed against budget at least monthly by the finance committee/Wardens/Parish Council and make adjustments & decisions to correct if required
  • Appropriate Documentation and processes for every agreement made with external orgs
  • Review of the Balance sheet to ensure that the church is able to meet it’s liabilities
  • More than one person has access to the accounts/bookkeeping records. Web-based accounting software such Xero.
  • Predetermined Authorisation limits. That is agreed spending limits and approval processes depending on the employee/volunteer/committee role.
  • Regular system of Internal Audits to check if the Policies and Produces are being followed.
  • Determination that all laws are adhered to.
  • Employment & Payroll documentation and policies.

 

Actual performance of internal control policies & procedures

A good system of division of duties, qualified personnel, and sound, written procedures will not guarantee good internal control—the system must be followed. Results must be periodically monitored to see if the system is working as it should be.

What if we are too small to have Division of Duties?

In many churches, it is often not practical to maintain a strict division of duties due to a limited staff size. If such is the case, other means will have to be used to help assure reliable internal control. For example:

  • rotation of duties among personnel;
  • more strict supervision;
  • special double-checking of work;
  • enforced vacations;
  • additional training to improve quality of personnel; and
  • more frequent internal audits.

We would love to hear some ideas from you about the kind of internal controls that you use within your church or organisation to reduce risk and pop it in the comments below. ⬇️⬇️

If you would like to reduce your church financial risks and discuss your church Internal Controls, please do not hesitate to contact us:

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If you haven’t already read the rest fo the series, you can read

Introducing – The RISK series!

 

Red Flags of Risk in the church – Part 2

 

Risk of the Future – Part 3