Many things can go wrong in a non-profit organization in it not achieving it’s mission, but the most common cause for failure is lack of financial accountability. It begins with governance and the boards ability to provide sufficient safeguards and control over the organizations resources. Financial literacy and the board’s ability to understand sound financial practices is essential. Financial transparency is the organizations ability to report accurately and responsibility to its stakeholders

The goals of financial management system is to ensure that sufficient financial policies are in place so that proper controls can ensure that financial reporting is accurate and reliable to the users of the financial information and that the assets of the organization are safeguarded. See sample Organizational Assesment

The goals of the financial control system are that the control environment provides for an accounting system and control procedures so that the assets and resources of the organization are protected. The common control elements include the control environment, risk assessment, control procedures, information and communication and monitoring. The following are example of typical consideration for these key elements:

Control Environment

• Management and staff have integrity
• Policies and procedures are documented
• Incompatible duties are segregated

Risk Assessment

• Management is knowledgeable about the risks
• Regular assessments are being made

Control Procedures

• Annual budget is approved by the board
• Regular reconciliations are made
• Transactions are approved

Information and Communication

• Monthly financial statements are prepared and reviewed
• Comparisons to budget are made and variances investigated

Monitoring

• Audits are reviewed and findings discussed and resolved
• Board asks questions about financial results

The goals of financial reporting are to measure the financial performance, to monitor changes in financial performance and finally to target operational changes, so the organization can meet its objectives.

In order for all of these systems to be effective written policies and procedures need to be in place. Once that environment is established, the board to be accountable and needs to establish a system for monitoring. Audit committee have become more popular with the Sarbannes Oxley  (see related SOX  article)rules now being considered as best practices by non-profit organizations. See sample Audit Committee charters

Procedures for monitoring can involve an annual review of control procedures, internal audit procedures performed by individuals outside the accounting function or external audits. External auditing is usually performed by CPA firms and can encompass many different types of reporting and testing. See Assurance services