Internal Controls in Nonprofits

Internal Controls and the NGO Sector

In previous articles, we discussed the proliferation of the NGOs or the Non Governmental Organizations in contemporary times and how not all of them are above board in their funding and internal processes. Of particular note are the fact that there is a lot of foreign money flowing into the NGO sector and hence, even those NGOs that profess strict and above board have to ensure that their internal processes are clean and their internal controls strict.

In the wake of the protests against the Kudankulam Nuclear Power Plant in India in 2012, there were allegations that the movement against the plant was being driven by vested interests with foreign donors contributing to the movement in order to stymie the power plant. This was the stand taken by the government of India when it said that dubious funding patterns were evident in the NGOs that were spearheading the movement. Without getting into the debate over whether this charge is true or whether the whole issue was warranted or not, it would suffice to state that it would be in the best interests of the NGOs concerned if they maintained regular audits and strict internal controls in order to be above board in their dealings.

The Need for NGOs to be Holier than Thou

Another example in the international arena is the case of the United Nations sponsored humanitarian efforts in Iraq and Africa coming under the scanner for dubious funding and for misappropriation. These examples prove the case for the NGOs concerned to have rigorous auditing and regular checks on their processes as well as to declare the sources of their funding in a transparent manner.

The point here is that in these cases, the NGO sector has to be cleaner than the others are as the sector professes humanitarian goals and purports to serve the common good. To uphold the highest traditions of public service and morality, the NGOs ought to have duly constituted boards with independent directors, institute periodic audits by reputed accountants, and ensure that they have internal vigilance so that any misappropriation would be dealt with accordingly.

Further, they must publish the charter of accounts every quarter or so to ensure transparency and due diligence to be carried out on their activities. The implications of failure are many and the ramifications huge as without a proper check on their activities, it would be nigh impossible for the NGOs to claim the moral high ground.

Final Thoughts

Finally, human nature is the same everywhere and where large amounts of money are concerned, it would be better if the NGOs maintained strict internal controls so as to be above board in their dealings.

The key aspect here is that the larger social cause would be served only when the NGOs concerned maintain their records properly and dismiss any staff found falsifying accounts and hiding funding sources in their annual reports.