NGO support toolkit (English)  >  NGO Support Programme management  >  Finance 

Internal controls

An internal control system is established by management to ensure that risks such as the loss or mismanagement of funds, or the misuse of assets are foreseen and minimised. Internal control systems also help to ensure compliance with laws and regulations and protect those responsible for handling the financial affairs of the organisation.

Organisations adopt different internal control models and approaches, but they share certain key features if they are to be used effectively:

• Segregation of duties and responsibilities. Different people authorise purchase orders, sign cheques and check the accuracy of the financial transactions
• Simple, effective and practical book-keeping. Accounting and record-keeping systems need to be tailored to the capacity, size and complexity of the NGO or CBO
• Documentation of all financial procedures in accessible manuals which are followed rigorously, but with procedures for review and adaptation of the rules (for example, as the NGO or CBO grows or as tax laws change).
• Consistency of financial systems over the years so that comparisons can be made, trends analysed and transparency facilitated.

It is important to help NGOs and CBOs develop contingency plans (for example, for managing money loss) before they are needed.

Issues to consider

• It is important to balance the pros and cons of hiring staff who are already ‘professionally qualified’ against training up administrative or clerical staff
• NGOs and CBOs may need to be provided with a ‘float’ so that funds are available to continue programme activities until a new disbursement is received
• Financial procedures may need to be developed or adapted to support different or overlapping reporting systems and requirements – for example, when an organisation needs to report to two donors at different periods of time, using different reporting formats
• NSPs need to be sensitive to different local ‘cultures’ of financial management and control, with different expectations and different terminologies.
• Compliance tends to be best when systems and procedures are seen to be useful and relevant to the actual work of the NGO and CBO.

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