Page 289 - Washington Nonprofit Handbook 2018 Edition

• Is the importance of the control activity properly communicated? It is
critical for leadership of the organization to set the tone and create a
culture of integrity.

• Are the results of monitoring activities connected with the risk
assessment process (i.e. the feedback loop)? To be effective,
evaluations must be conducted and reviewed by staff and Board.

• External auditors cannot be part of your internal control structure.
External auditors are a check and balance of the internal workings of
the organization, and should not be part of the internal control
structure.

5. Control Activities: Control activities are the actions established that
mitigate risk. Control activities are performed at all levels of the entity, at various
stages within business processes, and incorporated through the organization’s
technology. The activities may be preventative or detective in nature and may
encompass a range of manual and automated activities such as authorizations and
approvals, verifications, reconciliations, and business performance reviews.
Segregation of duties is one of the key concepts that will be included in developing
the control activities, and is discussed below.

e. What is Segregation of Duties?

A key to the internal control activities is the segregation of duties.
Segregation of duties is the concept of having more than one person involved in
completing a task in order to prevent fraud and error.

When creating internal controls that segregate duties, consider who has
access to financial systems, where they are in the system and when they have
access. Key areas of access can include: bank account access, organizational credit
cards, blank check stock, cash/checks received, accounting system, donor database,
payroll system, and approval authority. In each of these areas, create internal
controls where more than one person has to be involved to have access to these
areas or conduct financial tasks.

Examples of duties to segregate to the extent possible:

• Inflows (Contributions, Revenue, Receipts)

y Authorizing/approving bills

WASHINGTON NONPROFIT HANDBOOK -278- 2018