From my first-hand experience, the finance function within an organization is often viewed as a somewhat bothersome compliance exercise, as opposed to a critical tool an organization can utilize to maximize services provided. Although financial reporting and the related processes within the finance function can be time consuming and uninteresting (to everyone other than accountants!), financial controls and the individuals within the finance department who ensure they are implemented, play a critical role in even the smallest organization. Some of the key benefits of strong internal financial controls within a not-for-profit organization are detailed below.

Protection of scarce resources

In all organizations, protecting assets is a priority, however in an NPO the need for this activity is exasperated, given tight operating budgets and limited funding sources. Effective internal controls ensure the protection of these scarce resources (such as cash, supplies and inventory) against misappropriate, theft and inefficient use. Strong internal controls ensure that these scarce resources are utilized in the most effective and efficient manner, to maximize services (whatever those may be) provided to clients.

Accurate financial reporting

Effective financial controls allow for accurate and timely financial reporting. Financial reporting is an important requirement, which allows an NPO to meet reporting obligations to their funders, their Board of Directors and the users of their services. This in turn allows those individuals charged with governance, the ability to perform due diligence procedures, which ensures funds are being used appropriately.

Accurate financial reporting also gives the organization’s management a tool in order to determine which programs and initiatives are proving to be most effective, and which need to be improved upon. Accurate reporting is the base upon which future strategic plans are made, and financial controls ensure the information being used to create the strategy of an organization is accurate and timely, allowing management to make the best possible decisions for the future of the organization.

Collaboration between departments

Often an overlooked benefit of financial controls is the opportunity they create for collaboration between different groups within an organization, that may not otherwise interact. Strong financial controls require input from key members of the business units which provide services to clients and manage the organization’s programs, as well as the finance department. Frequent contact between these groups ensures open communication channels between groups, allowing for strong relationships to develop, so that in times of conflict or when issues arise, teamwork between these groups is already customary. On a more personal level, employees exposed to different people with different ideas and ways of seeing things, can continue to develop professionally.

The above are just a few benefits that financial controls allow an organization to reap, however the benefits to each organization vary greatly, depending on each organization’s unique circumstances.

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