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Who Should Write Checks for a Nonprofit? Why Writing Checks to Vendors is a Good Idea for Nonprofits!

Who Should Write Checks for a Nonprofit? Why Writing Checks to Vendors is a Good Idea for Nonprofits!

In the digital age of online giving and electronic payment systems, it may see strange that many nonprofits continue to make payments for expenses using the old school traditional paper check. And while this method of payment might seem a bit outdated, there are still some important reasons why many nonprofits still stick to checks and even prefer them over other forms of payment.

One of the most important reasons for using checks in your nonprofit is for documentation and accountability. Don’t forget, as a 501(c), you are legally obligated to be transparent in all financial transactions, including payments. With a paper check, it’s easy to see exactly who it was issued to, the date of the transaction and who signed off on the payment. Everything is crystal clear when your organization chooses to issue checks to cover their expenses for goods and services.

Another plus for using checks is they must be physically signed, which adds a level of security and oversight, particularly important in an environment where financial controls are critical. And if your nonprofit incorporates a few of our best check writing protocols that we’ll outline later in this article, then you can require two signatures for each check which brings another level of security against fraud and the mishandling of your nonprofit's funds. Obviously another big plus over electronic payments that can more easily be made with no real trail as to who made the payment.

One aspect people don’t often see is that checks can be a lot cheaper to use than electronic payments. If you pay with one, there is no additional fee for using it, unlike payment systems like Paypal or credit card processors. Often times there are fees included even though most payment systems offer reduced costs to nonprofits. But with a check, the amount that is written is what is deducted from your bank account, nothing more.

Checks are also super easy to use. They’re straightforward to issue and don't require complex setup or understanding of digital payment systems. Plus many vendors and service providers still accept and prefer them over electronic payments as they also get to keep the entire amount, whereas collecting payment on electronic invoices the vendor always incurs a fee.

As you can see, there are still a lot of advantages of using the old school paper check as a nonprofit organization. And once you establish a checking policy and incorporate the check writing process into your accounting procedures, writing one should be just as easy as using any other payment method, but much more secure.

Establishing a Check Writing Policy for your Nonprofit Organization

Having internal controls like a formal check writing policy for your nonprofit or charity is crucial for several reasons starting with accountability and transparency. As a legal nonprofit your organization will always be under constant scrutiny from both governmental entities as well as your donors and supporters in order to see if you're sticking to your mission or spending all your cash on things that don't matter. So you must always need to be able to demonstrate where all of the cash your non-profit spends is going.

A formal well laid out policy will also help prevent fraud and theft when the procedures you establish are followed. And with all the internal controls and documentation you won’t need to worry about compliance issues when it comes to your accounts or bank and your nonprofit will be able to demonstrate full transparency.

Luckily it’s easy enough for an organization form a formal policy regardless of the type or size of your charity. We’ll outline each recommended step and let you adjust our outline to your own specific needs. Here is what’s needed to create a solid policy;

Who Are the Nonprofits Authorized Signers?

Clearly define who is authorized to write checks on your organization’s behalf. The person that writes them should also not be one of the people signing them. Creating the checks should be done by the company's accountant or whoever it is that deals with your accounts, cash and expenditures. Once a need for a check is established, they should be created and then sent to the appropriate authorized signers in order to be verified and signed.

The signing of the checks typically involves board members or senior staff (e.g., Treasurer, Executive Director). Establish a process for getting your cheques to the correct people in a timely manner, and for very large organizations it is beneficial to have someone make sure everything is in order after the required signatures have been completed as a final safety measure before they are sent off. It’s always best to require two signatures to safeguard against theft or fraud, especially for larger sums of money.

What are your Check Limits?

Set internal controls for monetary limits for different levels of authorization. For instance, any cheques above a certain amount might require additional signatories or higher-level approval for a particular account. This should help larger organizations get their expenses covered quicker by not requiring super stringent rules for smaller expenses. Nonprofits can also differentiate limits by expense categories (operational, programmatic, services, capital expenditures) for better financial control and to make things even clearer.

Documentation and Financial Management 

The best way to make everyone’s lives easier is to always require thorough documentation for each check created. These internal controls should include invoices, receipts, and a clear explanation of the purpose of the expenditure. This way when it reaches the check signers desk they don’t need to inquire why it has been issued and it conforms with your nonprofit's typical expenditure patterns. Be sure there a clear business purpose is documented for each expenditure. This documentation will also make it easier if there is a problem with the payment or invoice sometime in the future.

Segregation of Duties and What Can Each Person Do

This point is especially important as many times theft and fraud happen due to only one person having full control of the check issuance and validation process. Ensure that the responsibilities for authorizing expenditures, writing checks, signing them, and reconciling bank statements are segregated among different individuals. This can really help your organization fight fraud and errors. You could even go a step farther and rotate duties among staff to prevent collusion and fraud for very large organizations.

Do Regular Audits and Reviews

This is vital for large corporations that have many employees. You need to establish a process of internal controls for regular audits and reviews of your checking activities that would ensure compliance with the policy and to help identify any irregularities. This could possibly happen on a yearly basis for smaller organizations, and increase to quarterly for larger ones. Implementing this step in the process could help ensure proper financial management and oversight is going on at all times. Again, the person doing these reviews, typically the the treasurer, should not be connected to the checking process in any way to avoid theft or fraud.

Written Record Keeping to Stay Compliant

The more detailed your record keeping the less chance there is for mistakes to happen. Maintain detailed and organized records of all checks written, including copies of the checks, related documentation such as invoices or statements regarding what the payment was for, and approval and signatory records throughout all of your fund accounting. This way if there ever is a problem with your financial statements, it will be much easy to look at your accounts to see where the problem exists and who was responsible.

Updating Your Policy

Regularly review and update the policy to reflect any changes in your organization’s operations, or new legal requirements or changes. As your business grows you might need to tweak your policy to customize it to your new size or budget. This is normally looked at once a year during a board of director’s meeting or yearly budgetary meeting.

Training and Communication for Your Non-profit 

You’ll need to train your staff on who is responsible for things like cash handling and expenditures. It needs to be clear how expenses are handled and who is responsible to take care of all of these expenses. Obviously you’ll also need more detailed training for those directly involved in your financial processes. Just be sure to clearly communicate any changes in your policy to all relevant parties when they happen.

Leverage Technology for Checks

When it comes to nonprofit financial management, leveraging technology is one way any organization could optimize and streamline their processes for issuing cheques. For small nonprofits, basic accounting software could effectively track and manage their transactions, assets, cash, loans and other internal bookkeeping necessities and provide a simple solution for their financial needs. Larger charitable organizations, on the other hand, might need more advanced financial management systems that offer a comprehensive suite of tools tailored to handle the complex financial operations and control typical of larger nonprofits.

A platform like Paybee, for instance, significantly elevates the efficiency of financial processes. It opens a seamless integration of various tasks, from issuing invoices to generating donor receipts for contributions. Moreover, our backend software enhances the management of financial data, ensuring secure and efficient tracking and storage. This feature is crucial for maintaining compliance with financial regulations and standards.

By incorporating everything we listed here, your nonprofit or organization could establish a robust and effective issuing policy that will safeguard its cash and other financial assets while maintaining its integrity and reputation. Just be aware of the specific needs your organization might need, for example international payments that might need an additional form or extra steps to complete.

Preventing and Detecting Fraud

Sadly, when it comes to nonprofit organizations, check fraud is a significant issue, often manifesting in various forms such as forged signatures, where unauthorized individuals replicate the signature of an authorized signatory; altered checks, involving changes to details like the payee name or amount after issuance; counterfeit checks, created using the organization's bank account information without authorization; and unauthorized checks, where employees issue them without proper approval for personal benefit or to cover up other misappropriations.

Understanding these types of fraud is and how to safeguard as best as possible is crucial for nonprofits to not to be swindled. This is why following the recommendations of our section on establishing your cheque writing policy is so important.

One of the best ways to help curb check fraud is to require a dual signatory requirement for each and every one that's written. This might include a nonprofit board member and someone from management or member of your support staff. By requiring two different people to sign each cheque, each transaction is validated twice which should  substantially reduce the risk of unauthorized or fraudulent ones being issued.

Additionally, conducting regular internal and external audits is a healthy practice to review your company’s financial transactions and internal controls, thus adding an additional layer of security. If you have a large organization you could possibly double up and have your bookkeeper do internal audits each month for each account, then sub contract an outside accounting firm to do quarterly audits in order to be sure the numbers add up.

If you have a small organization, you might also duplicate this process, but perhaps use your internal finance department do a quarterly report of all of your organization's accounts while your outside source does one every six months or so. The outside firm should be able to spot any irregularities in you accounting procedures.

Finally, regular reconciliation of bank accounts with the nonprofit’s financial records is another step you're able to take to increase transparency and help identify discrepancies. Again, the person looking at the accounts should not be involved in the cheque writing process or have any personal ties to your banks.

Despite these preventative measures, the possibility of fraud occurring remains. The best you can do is put security measures in place and stay on top of all your finances. If something should happen and you’ve followed all our guidelines above, you should be able to spot the theft quickly and find the responsible parties involved.

FAQs

Who should write checks for a nonprofit organization?

Typically your treasurer or chief financial officer is responsible for issuing checks, but if you’re a small organization you are free to designate whomever you wish to.Just remember, this individual will have access to the cash in your account, so decide accordingly.

Can a member of your nonprofit board issue a check?

That depends on what powers you grant your board members. For large organizations it is suggested that you include at least one board member's signature for larger cash amounts in order to reduce fraud and implement tighter internal controls. Yet the decision to allow or not to allow your board to issue checks or have access to your accounts is up to you.

Should the person who writes the checks also reconcile the bank statements?

No, the people involved in issuing the checks and doing any internal control duties like reconciling your bank statements should always be different to establish the tightest security measures possible. It's also suggested to have an outside firm to look over all of your accounts periodically to make sure the are no financial transgressions present.

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Bill Allen

Bill Allen is an expat that has been travelling the world for the past 25 years. He received his MA in writing in New York too long ago to remember, but has been writing on all sorts of subjects far varied publications ever since. When he isn't writing he enjoys meditating and working on his own website, UpscaleDrinks.com. Feel free to connect with him any time.

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