Fundamental and Cost-Effective Internal Controls

Abstract

Over the past years, charity organizations have largely remained unregulated due to the nature of the activities that they carry out in serving members and other interest groups. Their non-profit making nature of activities has particularly made them a lesser target for regulators. Their activities have however expanded substantially. In addition, the large amount of resources under their control has led to a need for closer monitoring of their activities. Another interesting fact about them is the fraudulent cases that have been witnessed in them as well as the inability of internal control systems to minimize thefts and other risks. It is therefore becoming very clear to government that these organizations need a closer monitoring and regulation if members of the public are to remain confident about them. Most government agencies have already established certain legal frameworks to take care of their activities but this is just a complementary measure to the traditional internal control system which has widely been used to ensure transparency in these organizations. The answers discussed below therefore give explanations to the various challenges facing the organizations, the application of the internal control system, and the role of the CPA through audit firms in streamlining the operations of the organizations.

1. Discuss the fundamental and cost-effective internal controls that charitable organizations could implement to reduce their exposure to theft losses.

Internal controls refer to the process of directing, monitoring, and measuring the organizational resources by ensuring that integrity of accounting and financial information is upheld to meet some organizational specific goals such as management effectiveness, profitability, and operational targets. Charity organizations have control over substantial resources that are both financial and non-financial. They therefore have a duty to ensure that all these resources are properly utilized to achieve project goals and programs that such resources are intended for. Internal controls therefore play a big role in ensuring the long term existence of charities while reducing their exposure to financial risks and other fraudulent acts like theft. The activities of not-for-profit organizations are not heavily regulated compared to profit making organizations. This makes internal control the main way of ensuring transparency and accountability in their operations. Charity organizations can therefore implement the following internal control measures to manage operational and financial risks:

Segregation of duties:

This is the most effective and less costly way of protecting the resources of a charity organization. Duties and responsibilities of members of the organization must be clearly defined so that an individual becomes responsible for