What Are Your Internal Control Objectives?

Many nonprofits recognize the importance of establishing strong internal controls. But it is just as important to know why certain internal controls are in place. In other words, what are the objectives of your internal controls and what are you trying to accomplish with them?

Following is a list of some of the most common internal controls and assertions at nonprofit organizations. Compare this list to your organization’s internal controls and your objectives for implementing each one.

Revenue Controls

Completeness Assertion: Are there procedures in place to ensure that all revenue earned has been recorded?

Cutoff Assertion: What has management done to ensure that all revenue earned has been recorded in the correct period?

Occurrence Assertion: What procedures has management put in place to ensure all recorded revenue transactions actually occurred?

Accuracy/Valuation Assertions: What has management done to ensure the correct amount of revenue was recorded? In other words, are there procedures in place to prevent overbilling or underbilling?

Rights and Obligations Assertion: Are there procedures in place to prevent sales in excess of credit limits (or to customers who are on a credit hold)?

Accounts Receivable (A/R) Controls

Accuracy Assertion: What procedures has management put in place to ensure that all checks received have been applied to A/R and posted to the correct customer accounts and invoices?

Existence Assertion: What has management done to ensure that fictitious invoices have not been created and that credits issued have been authorized?

Completeness Assertion: Are there procedures in place to prevent the creation of fictitious invoices and ensure all issued credits have been authorized?

Valuation Assertion: What has management done to ensure that the estimate for the allowance for credit losses appears reasonable?

Cash Receipts Controls

Completeness Assertion: Are there procedures in place to ensure that all cash and checks received by the organization have been deposited into the bank and recorded in the accounting software and none have been skimmed for personal gain?

Accuracy/Classification Assertions: What procedures has management put in place to ensure that all cash and checks received have been entered correctly into the accounting software?

Payroll Controls

Accuracy Assertion: Are there procedures in place to ensure only current and active employees get paid, and that these employees are paid the correct amount?

Existence/Accuracy/Cutoff Assertions: What has management done to ensure that accrued payroll and bonuses have been correctly recorded at the period end?

Purchasing Controls

Occurrence Assertion: What procedures has management put in place to ensure all purchases have been authorized and all products and/or services have been received?

Accuracy/Classification Assertions: Are there procedures in place to ensure all vendor invoices are entered accurately in the accounting system?

Accuracy Assertion: Are there procedures in place to prevent duplicate vendor invoices from being entered into the accounting system?

Cash Disbursement Controls

Accuracy/Rights and Obligations Assertions: What has management done to ensure that only valid vendors are paid?

Accuracy Assertion: What procedures has management put in place to ensure the proper amounts are paid to each vendor?

Existence/Occurrence Assertions: Are there procedures in place to prevent unauthorized disbursements?

Month/Period-End Close Controls

Accuracy and Existence/Occurrence Assertions: What has management done to prevent unauthorized journal entries from being posted in the accounting system, or to detect them if they are posted?

Prevent Audit Surprises

Plan to meet with your management team to discuss your internal control objectives before your next audit. Finetuning your internal controls will help the audit process run more smoothly and prevent unexpected surprises in the management letter.

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