The not-for-profit sector plays an increasingly important roll in fulfilling the desire for a civil, compassionate and well-functioning society whether it is arts, advocacy, civic, cultural, education, or health and human service organizations.

The stewardship, transparency and accountability of not-for-profit organizations are critical not only to its public standing but ultimately the long term viability of the organization. Stakeholders, donors or members expect the organization to act wisely with limited resources. It only takes one report of illegal or improper behavior, regardless of whether or not it actually occurred, to damage a not-for-profit's reputation.  Managers at not-for-profits must constantly be on the lookout for fraud.  Fraud in not-for-profit organizations includes cash theft, expense account fraud, misuse of an organization's intellectual property and inventory theft.  Fraud can happen in the most conscientiously run operation, most often perpetrated under circumstances and by people least suspected.

While elaborate internal controls are sometimes impractical due to the size of an organization, certain critical procedures should always be followed. Even organizations with only a few employees it is still possible to implement a system of checks and balances. These controls should help safeguard assets, produce accurate reports and improve administrative effectiveness.

Few nonprofits have strong internal controls. As organizations grow, the internal controls need changing. Make sure the controls are operating at a level that will deter and detect fraud. Establish a code of conduct that will create a clear understanding of what is expected of all employees.

According to the National Club Association, the internal control should be designed to cover the following areas in detail:

• Accounting & Finance-segregation of duties to reduce the opportunity for any one person to commit and conceal errors and irregularities, proper design and use of forms and records to ensure transactions are properly recorded, and assignment of responsibility for purchasing, receiving, and authorization of invoices and payments.
• Monthly financials-preparation, review and explanation of any variances.
• Human resources and payroll-procedures for maintaining complete personnel records, including applications, references and background checks, and work eligibility; payroll budgets and schedules; wage and hour compliance; timekeeping, preparation and disbursement of payroll.
• Computers and data systems-password management, back up and security procedures, transaction registers, document retention and destruction, hardware and software acquisition and upgrade schedules.
• Budget process-accountability; timing; planning procedures; roles of officers, management team, and committees; definition of goals and measurement of their effectiveness; justification and authorization for capital expense items.
• Investments-policies and strategies governing segregation of instruments by category; appropriate procedures for record-keeping, review, approval, storage and protection.
• Audit committee-establishment of a proper audit committee consisting of only outside directors; annual or as required meetings with the auditors to review management's effectiveness and adherence to policies and controls.
• Annual audit-selection of the auditor, scope of audit procedures and review of the management letter.
• Insurance-maintaining an appropriate level of employee dishonesty insurance and directors' and officers' liability insurance coverage. 

In addition to the internal controls listed above, maintain a positive culture-demanding that employees stick to the internal controls.  And again, frequently check the internal controls that are in place.

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