Internal controls

Protecting your organisation’s financial integrity

What are internal controls?

Internal controls are the systematic processes and procedures that organisations implement to manage financial risks, prevent errors, and ensure responsible financial management. These are not about mistrust, but about creating a transparent, accountable financial environment.

Purpose of internal controls

Internal controls serve several critical functions:

• Risk mitigation

  • Minimise the potential for financial mistakes

  • Prevent intentional or unintentional fraud

  • Protect organisational assets

• Accountability

  • Establish clear financial responsibilities

  • Create transparent financial processes

  • Build confidence among trustees, funders, and stakeholders

• Legal compliance

  • Fulfil trustees legal duty to safeguard organisational assets

  • Demonstrate responsible financial stewardship

  • Prepare for potential external reviews

Key areas to include in your financial controls

The following is a list of areas for you to consider who has responsibility and oversight. Each area should be controlled by more than one person.

1. Budgeting

• Use the budget as the cornerstone of financial control

• Ensure financial responsibility is shared across the entire committee

• Regularly review and update budgetary processes

2. Bank management

• Carefully control bank account access

• Implement strict online banking protocols

• Regularly review bank mandates and signatory lists

3. Expenditure authorisation

• Establish clear guidelines for spending decisions

• Define who can approve different levels of expenditure

• Create a transparent approval process

4. Salary management

• Develop comprehensive salary policies

• Implement multi-step verification processes

• Clearly define roles in salary calculation and approval

5. Cash handling

Establish robust procedures for:

• Petty cash management

• Cash income tracking

• Counting and banking cash

• Receipt documentation

6. Financial reconciliation

• Conduct regular bank reconciliations

• Verify financial records monthly

• Ensure accurate record-keeping

7. Reporting

• Create balanced financial reporting

• Provide sufficient detail without overwhelming the committee

• Ensure reports are timely and meaningful

8. External examination

• Carefully select independent financial examiners

• Understand the limitations of audits

• Maintain transparency in external financial reviews

9. Documentation and IT security

• Develop a clear filing system

• Implement robust IT security policies

• Protect sensitive financial information

10. Clear operations

• Avoid over-reliance on a single individual

• Distribute financial responsibilities

• Create backup systems and knowledge sharing

Best practices for implementation

• Document everything

  • Write down all financial procedures

  • Don't rely solely on institutional memory

  • Review and update procedures regularly

• Flexibility with accountability

  • Recognize that rules may occasionally need to be broken

  • Ensure committee oversight for any exceptions

  • Use exceptions as opportunities to improve processes

• Training and communication

  • Ensure all relevant staff understand internal control procedures

  • Provide regular training and updates

  • Foster a culture of financial responsibility

• Confidentiality and insurance

  • Ensure all relevant staff understand internal control procedures

  • Provide regular training and updates

  • Foster a culture of financial responsibility

Conclusion

Internal controls are not about creating bureaucracy, but about protecting your organisation's mission, assets, and reputation. A well-designed system of internal controls provides peace of mind and supports effective financial management.

If you need assistance developing your financial controls or would like feedback on your processes, please contact us for support.