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    Internal Controls For NGOs

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    Clinton Max
    The document discusses internal controls for NGOs. It explains that NGOs need sound internal control systems to manage risks and use resources properly. Small NGOs face risks in their operations similar to companies. The document provides guidance on common risks within processes like budgeting, income management, payroll, and procurement and recommends corresponding internal controls for small NGOs to improve accountability and transparency.

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    Internal Controls For NGOs

    Uploaded by

    Clinton Max
    910 views4 pages
    The document discusses internal controls for NGOs. It explains that NGOs need sound internal control systems to manage risks and use resources properly. Small NGOs face risks in their operations similar to companies. The document provides guidance on common risks within processes like budgeting, income management, payroll, and procurement and recommends corresponding internal controls for small NGOs to improve accountability and transparency.

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    Internal Controls for NGOs

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    The document discusses internal controls for NGOs. It explains that NGOs need sound internal control systems to manage risks and use resources properly. Small NGOs face risks in their operations similar to companies. The document provides guidance on common risks within processes like budgeting, income management, payroll, and procurement and recommends corresponding internal controls for small NGOs to improve accountability and transparency.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    910 views4 pages

    Internal Controls For NGOs

    Uploaded by

    Clinton Max
    The document discusses internal controls for NGOs. It explains that NGOs need sound internal control systems to manage risks and use resources properly. Small NGOs face risks in their operations similar to companies. The document provides guidance on common risks within processes like budgeting, income management, payroll, and procurement and recommends corresponding internal controls for small NGOs to improve accountability and transparency.

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    Internal Controls for NGOs

    NGOs are entrusted with managing public funds and resources and therefore need to maintain a sound
    system of internal controls practices. 
    In Hong Kong, most non-governmental organizations (NGOs) are charitable institutions with tax-
    exemption status which play a critical role in developing the society, improving communities and
    promoting citizens’ participation in various fields such as healthcare, education, environment and
    poverty alleviation. 

    As at March 2019, there were 9,906 charitable institutions which are exempted from tax under section
    88 of the Inland Revenue Ordinance, reflecting an increase of over 13% compared to March 2004. In
    the year of assessment 2017-18, the approved tax-deductible donations made by corporate and
    individuals to charitable institutions amounted to a total of HK$12.8 billion1.

    Why do small NGOs need internal controls?


    NGOs generally utilize public funds from government, charitable funding bodies or public donations
    to serve their beneficiaries. Regardless of their size of operations and funding, all NGOs are faced with
    risks in various areas of their operation just like commercial companies. Fostering a culture of
    governance and check and balance in the operations and delivery of services is an important way for
    NGOs to demonstrate that their resources have been put to good use for achieving their missions.

    While small NGOs may not have their own internal audit units, they are still required to be
    accountable to various stakeholders by sustaining a sound internal control system to manage their risks
    properly. By implementing internal controls in key areas, small NGOs can minimize fraudulent
    activities from occurring, use resources transparently and effectively, comply with the necessary laws
    and regulations, and ultimately build a respectable and trustworthy reputation.

    The Internal Control Toolkit for Small Non-Governmental Organizations serves to guide NGOs to


    improve their accountability and transparency by providing them with insights on common risks faced
    by small NGOs within four selected processes aligned with the flow of resources and funding. These
    processes include budget preparation and monitoring, income processing and management, payroll
    processing and adjustments, and procurement of goods and services.
    What is the relationship between risks and controls?
    Risk is the threat from an event, action, or circumstances that may negatively affect the achieving of
    an organization’s missions. Internal controls are mechanisms or procedures carried out by an
    organization or rules to mitigate or reduce the risks to an acceptable level. Example of risks and
    controls include:
    Situation at hand – One staff is responsible for maintaining staff master list and the preparation and
    processing of payroll payment.
    Risk – Fictitious employees created in the staff master list could not be identified and are processed
    for payroll, leading to loss of funds.
    Control – Segregate the conflicting duties to ensure the accuracy and completeness of payroll
    information.
    What small NGOs should consider when designing their internal
    controls?

    For typical examples of “what could go wrong” (i.e., risks) and corresponding internal control
    practices that could be established, please refer to the Internal Control Toolkit for details.
    Act Now

    Four immediate steps that small NGOs can take:


     Revisit the organizational and governance structure, roles and responsibilities of each process
    owner, as well as policies and procedures established within key processes
     Collaborate between the board and staff to strengthen the control environment and
    communicate the importance of internal controls
     Be proactive about addressing emerging risks within the organization
     Refresh and enhance the internal controls based on the dynamic change and needs of the
    society

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