In this edition

August 2024


Segregation of Duties for Cash Receipts in Nonprofits


Federal Regulators Expand Overtime Pay Requirements, Ban Most Noncompete Agreements


Segregation of Duties for Cash Disbursements in Nonprofits


The Importance of Establishing Operating Reserves 


Client Feature: Rawhide Youth Services


Executive Director Q&A: Alan Loux

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What is Segregation of Duties?


Segregation of duties is an internal control process meant to prevent error and fraud by ensuring that at least two individuals are responsible for the separate parts of a task.

 

Due to the size of many not-for-profits, proper segregation of duties can be challenging to adequately identify and implement. Frequently organizations do not think it is possible to adequately segregate their internal controls, but even with a staff of two or three it is possible to have strong controls in place to help mitigate the chance for errors or fraud. 

 

In this newsletter, we take a deeper look into some common segregation of duties issues and ways to help strengthen the controls around them.

Segregation of Duties for Cash Receipts in Nonprofits

A well-managed cash receipt process is essential for nonprofit organizations to ensure accurate recording of incoming funds, maintain financial transparency, and build trust with donors. Given the diverse sources of income for nonprofits, implementing a strong cash receipt process is crucial for effective financial management. This article outlines key strategies and best practices for optimizing the cash receipt process in nonprofit organizations.


Understanding Cash Receipts

Cash receipts refer to the funds received by an organization from various sources. For nonprofits, this typically includes donations from individuals and businesses, grants from foundations and government agencies, fees from services, membership dues, event proceeds, and other fundraising activities. Properly managing these receipts is critical to maintaining financial integrity and ensuring that funds are used appropriately.


Key Functions in Cash Receipts

Effective segregation of duties for cash receipts involves separating the following key functions:


  1. Collection: Receiving and handling incoming cash or checks.
  2. Recording: Entering cash receipt transactions into the accounting system.
  3. Deposit: Preparing and making bank deposits.
  4. Reconciliation: Comparing recorded cash receipts with bank deposits and accounting records.


Implementing Segregation of Duties

To implement effective segregation of duties for cash receipts, nonprofits should follow these practices:


.. 1. Collection:

  • Assign different individuals to receive cash and checks. For instance, one person can open mail and another can log the receipts. Alternatively, two individuals can open the mail together and provide agreement for the total amount of receipts received.
  • Issue pre-numbered receipts for all cash transactions and ensure that receipts are logged immediately.

.. 2. Recording:

  • Separate the recording of cash receipts from the collection process. The person entering receipts into the accounting system should not have access to the cash or checks.
  • Implement dual control where two individuals verify the recorded amounts.

.. 3. Deposit:

  • Ensure that the person preparing bank deposits is different from those involved in collection and recording. This person should verify that the deposit matches the recorded amounts.
  • Ensure that all funds received are deposited into the organization’s bank account promptly. Delayed deposits increase the risk of loss or theft.

.. 4. Reconciliation:

  • Assign an independent individual to reconcile cash receipts records with bank statements. This person should not be involved in the collection, recording, or deposit processes.
  • Perform reconciliations regularly (e.g., monthly) to promptly detect discrepancies. Reconciliation should include reconciling to the bank statement, but also to the donor database. 


Overcoming Challenges in Small Nonprofits

Small nonprofits with limited staff may face difficulties in fully segregating duties. However, there are strategies to mitigate risks:


.. 1. Board or Volunteer Involvement:

  • Involve board members or trusted volunteers in the cash receipts process. For example, a board member can review cash receipt logs and reconciliations.

.. 2. Cross-Training:

  • Cross-train staff to perform multiple roles and rotate duties periodically. This reduces the risk of long-term collusion and provides coverage during staff absences.

.. 3. Technological Solutions:

  • Use accounting software tailored for nonprofits to streamline the cash receipt process. These tools often include features for tracking donations, generating receipts, and producing financial reports.
  • Implement secure online donation platforms to facilitate easy and efficient collection of funds. These platforms should integrate with the organization’s accounting system to ensure accurate recording and reporting.
  • Utilize automated acknowledgment systems to send timely thank-you messages and receipts to donors. This enhances donor relations and ensures compliance with acknowledgment requirements.


Other Considerations in the Cash Receipt Process

  • Multiple Channels: Nonprofits often receive funds through various channels such as cash, checks, online donations, wire transfers, and in-kind contributions. Each channel requires specific handling procedures.
  • Detailed Records: Maintain detailed records of all transactions, including the date, amount, source, and purpose of the funds received. Additionally, source documents should be maintained to provide backup support of the receipt and to provide verification of potential donor restrictions (including: letters, emails, copies of checks, check stubs). This documentation is essential for transparency and accountability.
  • Regular Reporting: Provide regular financial reports to the board of directors, donors, and regulatory agencies. These reports should detail the sources and uses of funds, demonstrating transparency and accountability.


Segregation of duties is crucial for protecting the financial integrity of nonprofit organizations. By carefully dividing responsibilities related to cash receipts and implementing robust checks and balances, nonprofits can reduce the risk of fraud, ensure accurate financial records, and maintain donor trust. 


If you have any questions regarding the cash receipt process for your organization, please contact your Hawkins Ash CPAs representative. 


Briana Peters, CPA

D 920.337.4549

E bpeters@ha.cpa

Federal Regulators Expand Overtime Pay Requirements, Ban Most Noncompete Agreements

Starting on July 1, 2024, most salaried workers who earn less than $844 per week will be eligible for overtime. On January 1, 2025, the threshold will climb further, to $1,128 per week. Learn more about federal overtime pay requirements.

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Segregation of Duties for Cash Disbursements in Nonprofits

Effective cash disbursement processes are crucial for nonprofits to maintain financial integrity, transparency, and operational efficiency. Unlike for-profit organizations, nonprofits face unique challenges, including stringent regulatory requirements and the need to assure donors that funds are used appropriately. One critical internal control is the segregation of duties which ensures that no single individual has control over all aspects of any significant financial transaction. This article explores the importance of segregation of duties for cash disbursements in nonprofits and offers practical steps for implementing effective controls.


Understanding Cash Disbursement

Cash disbursement involves the outflow of funds from the organization to pay for expenses, liabilities, and other financial obligations. For nonprofits, this could include payments for program expenses, grants, salaries, office supplies, and other operational costs. A well-managed cash disbursement process ensures that funds are allocated and spent according to the organization’s mission and donor restrictions.


Key Functions in Cash Disbursements

The process of cash disbursements involves several key functions that should be segregated to maintain effective internal controls:


  1. Authorization: Approving the expenditure.
  2. Custody: Handling the actual cash or check.
  3. Recording: Recording the transaction in the accounting system.
  4. Reconciliation: Verifying the accuracy of financial records.


Implementing Segregation of Duties

To effectively segregate duties, nonprofits should consider the following practices:


  1. Authorization: Ensure that only designated individuals, such as department heads or senior managers, have the authority to approve expenditures. Establish clear policies outlining who has the authority to approve disbursements and under what conditions. Approval thresholds should be set, requiring higher-level authorization for larger amounts.
  2. Custody: Separate the handling of cash or checks from the authorization and recording functions. The individual responsible for issuing checks or managing cash should not have the authority to approve transactions or record them in the accounting system. Decide whether payments will be made via check, electronic funds transfer (EFT), or other methods. EFTs are often faster and more secure, reducing the risk of lost or stolen checks.
  3. Recording: Assign a different individual to record transactions in the accounting system. This person should have no involvement in the authorization or custody of cash or checks.
  4. Reconciliation: Regularly reconcile bank statements with accounting records. The reconciliation process should be conducted by someone who is not involved in either the authorization, custody, or recording of transactions. This independent review helps ensure that discrepancies are identified and investigated promptly.


Overcoming Challenges in Small Nonprofits

Implementing segregation of duties can be challenging for small nonprofits with limited staff. However, several strategies can help:


  1. Board Involvement: Involve board members in the approval and reconciliation processes. For example, a board treasurer can review and approve expenditures and conduct periodic reconciliations.
  2. Rotating Duties: Rotate financial responsibilities among staff members periodically to reduce the risk of fraud and errors.
  3. Technology Solutions: Utilize accounting software with built-in controls that require multiple approvals for transactions, thereby automating part of the segregation process.
  4. External Reviews: Engage external auditors or consultants to review financial processes and provide recommendations for improving internal controls.


Other Considerations in the Cash Disbursement Process



  1. Invoice Management: Ensure that all disbursements are backed by valid invoices or receipts. These documents should be reviewed for accuracy and compliance with the terms of purchase.
  2. Expense Reports: Require detailed expense reports for employee reimbursements, including original receipts and a description of the business purpose.
  3. Adhering to Grant Restrictions: Carefully track and report expenses according to the stipulations of grants and donor agreements.


Segregation of duties is essential for maintaining financial integrity in nonprofit organizations. By thoughtfully dividing responsibilities among different individuals and implementing checks and balances, nonprofits can protect their assets, ensure accurate financial reporting, and build trust with donors and stakeholders. Even small nonprofits can adopt creative solutions to achieve effective segregation of duties, thereby safeguarding their financial resources and fulfilling their mission responsibly.


If you have any questions in regards to the cash disbursement process for your organization, please contact your Hawkins Ash CPAs representative. 


Matt Neu, CPA

D 920.684.2549

E mneu@ha.cpa

The Importance of Establishing Operating Reserves

The title "not-for-profit organization" can be somewhat deceiving and leads many to believe that these types of organizations are not allowed to make a profit.

Read More

Client Feature

Rawhide Youth Services

Rawhide Youth Services is a faith-based 501(c)(3) mental and behavioral health agency that provides Wisconsin’s at-risk youth and families with residential and community-based services to help them overcome life’s challenges.


Since 1965, Rawhide’s mission has been one of faith—faith in the potential of the youth they serve and the staff who guide them. The youth they serve have experienced unimaginable difficulties and many struggle with anger, anxiety, depression, abuse, trauma, suicidal thoughts, and more. Even if there are setbacks, Rawhide stands beside them as these youth continue moving forward to a brighter future.


With 10 counseling clinics and licensed therapists in over 50 schools across Wisconsin, Rawhide continues to be a leading mental and behavioral health organization for traumatized youth. Today, Rawhide offers residential services in New London and Peshtigo, community-based youth counseling such as traditional talk therapy, occupational therapy, and equine-assisted therapy, and a behavioral job training program designed for residential youth and local youth.


By raising over $6 million through their Building Hope Capital Campaign, Rawhide continues to make exceptional progress as they expand and enhance their life-changing services for youth and families. So far, the campaign has helped Rawhide build and remodel on-campus facilities such as the Starr Youth Home, the Welcome Center, and The Bart and Cherry Starr Museum.


Starr Youth Home: The newest house at their New London campus, the 10,000-square-foot residential home honors Rawhide’s co-founders and greatest supporters, Bart and Cherry Starr. It increases capacity, safety, and convenience in a family-centered, therapeutic environment. This 12-bedroom home can accommodate up to 16 youth.



Welcome Center: Rawhide’s remodeled Welcome Center provides a state-of-the-art resource and training space that impacts not only its staff and youth but also the community. This renovation offers space for meetings, trainings, seminars, or social gatherings for youth and families in the community.


The Bart and Cherry Starr Museum: Working closely with Cherry and the Starr family, the Green Bay Packers, and the National Football League, The Bart and Cherry Starr Museum showcases Bart and Cherry’s character, values, and the essence of their life journey. Cherry wished the museum to be on Rawhide’s grounds to share their character, values, and life story with staff, donors, and youth.


Additional capital campaign-funded projects include:

  • Resource & Training Center: An enhanced space for meetings, trainings, seminars, or social gatherings that impact staff, youth, and the community.
  • Corporate Retreat Program: A program where companies and businesses, community resources, and school districts can utilize their facilities.
  • Alumni Services: Youth who complete Rawhide’s residential or community programs are eligible for alumni services, which include continued support in education, environment, and other basic needs.


Learn more about Rawhide Youth Services online:

Rawhide Youth Services

Executive Director Q&A: Alan Loux

Alan Loux came to Rawhide in 2017 and serves as President and CEO. He oversees the strategic direction, vision, and management of Rawhide’s programs and services. He holds an undergraduate degree in business/economics from Wheaton College and an MBA in marketing from the University of Wisconsin-Madison.


Alan brings extensive and diverse experience, having held leadership roles in both the corporate and nonprofit sectors. He began his career working in faith-based nonprofit organizations such as Prison Fellowship, a global ministry to those in prison, and Inter-Varsity, a global college campus ministry headquartered in Madison, Wisconsin where he served as Director of Marketing and Assistant to the President. Previously, Loux served as Vice President, Global Marketing with JLG Industries, Inc., Corporate Vice President – Marketing with Direct Supply, Inc., and a 19-year career with Kimberly-Clark Corporation, most recently as Vice President – Marketing and General Manager.

What has been your biggest source of pride as CEO?

Rawhide Youth Services keeps one metric at the forefront of everything we do: the number of lives served. When I started at Rawhide, we were helping less than 500 youth every year across all our services in both residential settings and outpatient clinics. Last year, Rawhide served over 1,500 youth. We have tripled the number of lives impacted by our work and I couldn’t be prouder of the team for this accomplishment. And remember, that’s not just a single life. That child’s mental health affects parents, grandparents, friends and family, teachers, and the community at large, so we’ve literally impacted thousands of people through this work.

What are your three biggest accomplishments in your career as a nonprofit leader?

  1. We are establishing sustainable business models for Rawhide’s core operations to ensure long-term viability. This includes identifying new revenue streams, optimizing resources, and forming strategic partnerships that align with our mission.
  2. We went from serving 1,088 youth in 2022 to 1,550 in 2023, an increase of more than 400 compared to the prior year. This expansion allows us to reach more young people who need mental health and behavioral support, extending our services to more schools and communities.
  3. We undertook a $6.5 million capital campaign to transform our campus. This project includes building a new Starr home, creating The Bart and Cherry Starr Museum, constructing new corporate offices, and enhancing our café with a teaching kitchen as part of our new behavioral job training program.

What are the dominant challenges that you see nonprofit organizations facing and what do you think would be viable solutions?

Securing consistent and sustainable funding is crucial for our organization. With increased competition for grants and donations, nonprofits often struggle to maintain the financial stability they need. Additionally, keeping up with rapidly changing technology can pose a significant barrier to efficient operations and outreach.


As a people-centered organization, we also face staffing challenges. Competitive wages are necessary to attract and retain talent, especially in recent years, with wage inflation putting pressure on our budget. Like many organizations, Rawhide has had to allocate a significant portion of its revenue to increasing wages and benefits, primarily health care costs. Finding individuals who not only possess the necessary skills but also have the heart and grit to work with some of the most challenging youth is no easy task.


Viable solutions include diversifying our funding sources to reduce dependency on any single funding stream, whether through grants, individual donations, or corporate partnerships. Additionally, investing in technology that enhances donor engagement, improves operational efficiency, and expands our reach is essential.

What aspects of nonprofit accounting do you find most challenging?

One of the most challenging aspects of our work is maintaining transparency and accountability while managing a lean budget. Nonprofits operate with limited financial resources, so every dollar must be accounted for and justified. Balancing this need for financial oversight with the need to invest in organizational growth can be particularly difficult.


Additionally, half of our funding comes from donors, while the audience and youth we serve are mostly on Medicaid. Unfortunately, the reimbursement rates do not come close to covering the cost of our services. As a result, we must rely on the generosity of our neighbors and friends to ensure these essential services remain available. This reliance can be especially challenging during tough economic times.

How do you see the organization changing in the next two years, and how do you see yourself creating that change?  

I envision Rawhide increasing our services in the markets we serve and expanding to more markets throughout Wisconsin to reach more youth who need mental health support. We will also remain focusing on strategic partnerships, particularly with school districts providing mental health services directly in their schools when and where youth need help.


We aim to extend our services across the state and continue growing our job training programs, particularly for 18 to 24-year-olds who struggle to find employment due to behavioral or mental health challenges.

Hawkins Ash CPAs

www.HawkinsAsh.CPA

info@ha.cpa

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