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How Nonprofits Should Handle Cash

best practices board finances fraud reporting Jul 06, 2023

How Nonprofits Should Handle Cash

     One of the most significant responsibilities of your nonprofit is to ensure your finances are in order. One of the most common problem areas is how we handle cash or money that's been received. So today, let’s take a deeper look at how nonprofits should handle cash. 

     Unfortunately, nonprofits actually experience more fraud than for-profit entities. More often than not, this is made possible because we've failed to put the right processes in place. Today, I want to share a few things that you can be doing to make sure that your nonprofit is better protected.

Use a Cash Receipt Book

 The first practice every nonprofit should put in place is to use a cash receipt book. Yes, I’m literally talking about that old school duplicated receipt book! Any time there is cash coming into your organization, you should receipt it. Document the date, the amount, the purpose, and have the person receiving the cash sign off on it. These records can prove to be incredibly helpful. (I’ll explain why in a personal story below.) 

Use Dual Controls for Handling Cash 

     Second, nonprofits should never let one person have sole control over the cash. Always use pairs. I like to think of it as dual controls. You need two people present at all times. Even the Navy Seals check each other, right? No one goes at it alone! So develop a system in which two people are always present whenever money is counted. You can still split the duties- one person records the transaction and the other deposits it, but no matter how you slice it, you really need two people verifying the physical amounts. Ideally,  even after this 2-person verification, a third person should do your bank reconciliations independently from that process of counting, recording, and depositing. 

CFO Story Time

     As I alluded to, I’d like to share with you a personal story from my own experience to inspire you to put these practices in place.  They really are critical, and if they are honored, they will protect your organization. The unfortunate truth is that  there are bad actors- people who do things they shouldn't do… even in nonprofits. I’ve experienced this first hand. When it happened to me and it was detected, we backtracked. And this receipt process I’ve shared with you today was the key to understanding what had taken place. 

     In this case,  what was happening was that money was supposed to be counted in pairs and then locked in a bank bag, and then deposited at the bank. In reality, the people that were supposed to be counting together had stopped their process. The person who was receding it and dropping it into the safe would later retrieve it with the second person (who committed the wrong) Instead, this bad actor had convinced the person who had been receipting and dropping it into the safe that it didn't matter and that it wasn't a lot. After all, they were in a hurry, so the bad actor would just take it back to their office and count it. So, can you guess what was happening? Well, of course, things were disappearing. But, guess what else-  that little receipt book was what provided the paper trail. Having those original signed receipts for each customer transaction created a log- an audit trail that allowed us to see what had really happened and to make those accounts right for our customers. It also enabled us to appropriately bring accountability to the person who had done the wrong. So, if you’ve ever wondered why I'm so passionate about this, it’s because it can happen to anyone and it has even happened to me. 

     In conclusion, I want to encourage you to implement efficient and effective internal control processes within your own organization. Make sure you have those checks and balances for managing cash. Document and develop your processes, but don’t stop there! Inspect then regularly to make sure that they're still being followed. Let’s all commit ourselves to following these best practices in our nonprofits so that we can ensure the longevity and success of our organizations. 

     I have a really helpful tool to share that will keep you on track every week, month, and year. It’s my free Financial Task Checklist. Effective financials begin with a good checklist, so I invite you to check out mine today!

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