Internal Controls for Nonprofits in 2026 A Practical Guide to Mitigating Risk
Internal Controls for Nonprofits in 2026 A Practical Guide to Mitigating Risk
Internal controls are the policies and procedures that safeguard an organization’s assets, ensure the reliability of financial reporting, and promote compliance with laws and regulations. For nonprofits, where public trust is the currency of operation, a sufficiently designed and effectively operating system of internal controls is essential . Auditors, funders, and boards are placing greater emphasis on how nonprofits safeguard their finances, and even small teams must show clear review processes and documented checks and balances .
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) provides the most widely accepted framework for internal control, which includes five integrated components: control environment, risk assessment, control activities, information and communication, and monitoring activities . For nonprofits, key control activities typically include segregation of duties (authorization, recording, and custody of assets should be separated), physical controls over assets (locked cash drawers, restricted access to check stock), and independent reconciliations (bank statements reviewed by someone not handling cash).
Perhaps the most common recommendation for understaffed nonprofits is to implement compensating controls when full segregation is impossible. For example, if one person handles both cash receipts and bank reconciliations, a board member or executive director should review the reconciled statements monthly. Documentation is critical: all controls should be put in writing, not just “understood,” and evidence of reviews should be retained . Think of internal controls like seatbelts—you barely notice them until they save you .
The 2026 Nonprofit Internal Control course offered by the New Jersey Society of CPAs emphasizes that the importance of internal controls applies regardless of a nonprofit entity’s nature, size, or complexity . Information technology general and application controls are also critical, even in less-complex IT environments . At Nova Tax & Accounting Services, our Assurance and Compliance for Nonprofits team can help you document your internal control environment, identify gaps, and implement practical solutions that protect your organization and satisfy auditor expectations.
