Internal Control Checklist for Small Businesses and Non-Profit Entities

July 2011

Are you concerned about losing some of your hard earned dollars through errors or dishonesty? If not, you should be! Government and large companies have the resources to put systems of checks and balances in place, but small business owners and non-profit organizations may not be able to afford to do so. However, there are some very easy steps you can take to significantly reduce your risks. Here are some ideas.

1. For non-profit organizations and small businesses with absentee owner-management, require dual signatures on all cheques, and whenever possible, neither of these should be the bookkeeper.
2. Never ever pre-sign blank cheques!
3. When signing cheques, always review and understand the purpose of the underlying invoices or other documentation; for payroll, ensure the net pay cheques are based on approved salary levels. Initial the underlying documents.
4. For cheques payable to the Receiver General for Canada, ensure the tax registration number and year to which the payment relates is written on the face of the cheque and the remittance documentation is attached.
5. Do not authorize personnel to use on-line banking, debit or credit cards unless controls are in place to require two online authorizations.
6. For revenue collection, set up systems requiring payment by cheques, credit cards, debit cards, etc. to avoid cash handling if possible. Where cash is collected, for event admissions for example, two people should share the collection responsibilities. Issue receipts or tickets for all collections, whether payers wish a receipt or not, and ensure these receipts (or tickets) are sequentially pre-numbered so they can all be reviewed and reconciled. Example: If 10 admission tickets are issued for $10 each, you should have $100.00 to deposit.
7. Place controls on inventory so that reductions in inventory can be matched to revenue collected.
8. When hiring personnel, always check references and contact prior employers to ensure there are no issues of concern; do police checks where appropriate.
9. The business owner, or the Treasurer and Chief Executive Officer, should regularly review financial reports to ensure that bookkeeping is up to date, accurate and complete, as well as for management decision-making purposes and budget control. (See our supplemental checklist of procedures for regular financial review, Financial Oversight Checklist for Business Owners and Treasurers.) A financial report should be presented at each Board meeting by the Treasurer.
10. The bank statement should be mailed to the Treasurer or an authorized director other than the bookkeeper, who should review it and the enclosures for appropriate authorizations before passing it to the bookkeeper.

The following additional steps relate primarily to non-profit entities:

11. For charities, ensure you read and understand the strict Canada Revenue Agency guidelines for issuing receipts, including issuing receipts for donations in kind, proper dating, and information to be disclosed on receipts.
12. At each Board of Directors meeting, obtain a compliance report from the bookkeeper or Chief Executive Officer indicating that all appropriate tax remittances have been paid and confirming the organization’s compliance with all government regulations.
13. The Treasurer, and preferably all Board members, as well as the Chief Executive Officer, should be able to read and understand financial reports, thereby allowing proper oversight and asking of questions regarding financial issues. Obtain training, if necessary.
14. At each Board meeting, hold an ‘incamera’ session with only Board members to discuss private issues (i.e. without the presence of management).

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Blair Corkum, CPA, CA, R.F.P., CFP, CFDS, CLU, CHS holds his Chartered Professional Accountant, Chartered Accountant, Registered Financial Planner, Chartered Financial Divorce Specialist as well as several other financial planning related designations. Blair offers hourly based fee-only personal financial planning, holds no investment or insurance licenses, and receives no commissions or referral fees. This publication should not be construed as legal or investment advice. It is neither a definitive analysis of the law nor a substitute for professional advice which you should obtain before acting on information in this article. Information may change as a result of legislation or regulations issued after this article was written.©Blair Corkum