Mitigating Controls in Nonprofit Organizations

Mitigating Controls in Nonprofit Organizations

April 27, 2026

Article Summary

• Small nonprofit teams often struggle with proper segregation of duties, increasing the risk of fraud and errors when one person handles multiple financial responsibilities.
• Mitigating controls—like active board and treasurer oversight—can provide critical checks and balances without increasing staff.
• Leveraging accounting technology (user permissions, approval workflows, restricted access) helps strengthen internal controls and reduce risk efficiently.

Many nonprofit organizations operate with small accounting teams. As a result, the risk of fraud and errors increases due to limited segregation of duties. While increasing headcount could strengthen internal controls, this is often not feasible for nonprofits with limited resources. Fortunately, organizations can implement effective mitigating controls to establish appropriate oversight and reduce risk.

Segregation of Duties

Segregation of duties is a key component of a strong internal control environment. It ensures that no single individual has control over all aspects of a financial transaction. Responsibilities such as authorization, custody of assets, recordkeeping, and reconciliation should, ideally, be divided among multiple individuals.

In smaller organizations, however, one person, often the executive director or finance manager, may perform several of these roles. This concentration of responsibilities increases the likelihood of both errors and fraudulent activity.

Practical Mitigating Controls

Rather than compromising internal controls, small nonprofits should implement alternative checks and balances to strengthen oversight. The following approaches can help mitigate risk:

Board and Treasurer Oversight

• Most nonprofit organizations are governed by a board of directors, which can play a critical role in financial oversight. Involving board members, particularly the treasurer, in financial review processes is one of the most effective compensating controls. Examples include:
  • Reviewing financial statements on a regular basis
  • Reviewing monthly bank reconciliations
  • Reviewing journal entries for accuracy and appropriateness
  • Authorizing transactions, especially those above a defined materiality threshold

Leveraging Technology

• Modern accounting systems offer features that can enhance internal controls, even with limited staff:
  • Restrict system access based on user roles (e.g., separating invoice entry from payment processing)
  • Assign permissions aligned with individual responsibilities
  • Require approvals or reviews before transactions are finalized

Conclusion

While segregation of duties is essential for effective internal control, it is not always practical for small nonprofit organizations. By implementing mitigating controls such as increased board involvement and the strategic use of technology nonprofits can significantly reduce risk and strengthen their financial oversight.

Frequently Asked Questions About Mitigating Controls in Nonprofit Organizations

1. What are mitigating controls in a nonprofit organization?
Mitigating controls are alternative processes or safeguards put in place when standard internal controls—like full segregation of duties—aren’t feasible. They help reduce the risk of fraud and errors through added oversight and accountability.

2. How can a nonprofit improve oversight without hiring more staff?
Nonprofits can involve board members, especially the treasurer, in reviewing financial statements, bank reconciliations, and significant transactions. Regular oversight from leadership adds an important layer of accountability.

3. What role does technology play in strengthening internal controls?
Accounting systems can enforce internal controls by restricting user access, assigning role-based permissions, and requiring approvals before transactions are completed, helping nonprofits maintain strong oversight even with limited personnel.