Speaker 1: Hey, this is Alex from Atlas Academy. Today we're going to take a look at internal controls, what they are, how do you set them up, and how they can benefit your non-profit. If you work for a non-profit or a church, this is the course for you. So what's an internal control? An internal control is a process that you put in place that protects your non-profit's assets and the people involved in your non-profit. The sole purpose of an internal control is to protect your organization against fraud. A non-profit won't only have just one internal control, but rather a whole system that provides safeguards for your non-profit. So think of internal controls as a chain, little links that when connected are very strong, but if one of the links breaks, the whole thing is compromised. Same thing with internal controls. If you have a system of internal controls in place and one of them fails, the whole system is compromised. Let's take a look at an example. Let's say your non-profit throws a fundraiser which has a donation bucket that attendees can put money into. At the end of the fundraiser, the money is collected, counted, and deposited to the bank. This income also makes its way into your accounting records, which is then reported on an income statement to show whether or not the fundraiser was profitable. You with me so far? These are the questions you're going to need to ask when creating internal controls for this fundraiser. How much money was donated? Who counted the money? How much money was deposited? Was the deposit amount the same as what was counted? How do you know if the accounting record was entered correctly? Each of those questions has an answer, and each of the answers represents an internal control that should be set up. Remember, like a chain, if one of these is broken, the entire thing is compromised. So say the person who counted the money took some. Without internal controls around that process, there would be no way of knowing if they took the money or not. Your non-profit's assets, which is the cash that was donated, has been compromised, as has the reputation and integrity of the person counting the money. If a proper internal control was in place, the money would be accounted for properly, and the person counting would be above reproach. Another example is let's say the person that deposited the money was the same person who recorded the deposit in the accounting system. If they decided to take some of the money before it was deposited, and they're the one recording it in the accounting system, it would be next to impossible to catch. These examples go on and on, but remember, the sole purpose of internal controls is to protect your assets and your people against fraud. With a complete internal control system, you can rest easy knowing that your assets and your people are protected. So a side note about having internal controls protecting your people. It makes sense with your assets, but why do you need to protect your people? Well, the people involved in counting the money, depositing the money, recording the entries, all that different stuff need to be protected as well. What happens if one of them makes a mistake, and then people are investigating? With a solid internal control system, you can make sure that that person isn't accused of doing something that they didn't have any access to do. So for instance, if the person depositing the money into the bank, we'll call him Dennis, doesn't have access to withdraw the money, Dennis can never be blamed for taking money out of the bank. So using the example of the fundraiser, let's say that people are counting the money, depositing the money, recording it in the accounting system, and generating a report. The internal controls will be this. Two people count the money, let's say Megan and Katie. Megan and Katie count the money, and then give it to John, who runs it to the bank and deposits it. John doesn't have any access to actually withdraw money from the bank, so he can't be accused of taking the money in the first place. Then finally, Brandon records the entry in the accounting system, and generates a report showing the whole process. Today we took a really brief look at what internal controls are, and down the road we're actually going to create an entire course around this topic, so stay tuned. Next time we're going to take a look at the accounting rules and the accounting standards that you need to adhere to as a non-profit. Until next time, make sure to read the content below, because it goes into a lot more information on what we talked about today, and be awesome.