For nonprofits, fall signals more than just events, donor campaigns, and program reports. It’s also the beginning of audit seasonal time when financial accountability is under the microscope. Grantors, auditors, and donors want to see not just accurate numbers, but also strong internal controls that demonstrate responsible stewardship of funds. 

The challenge? Many nonprofits, especially smaller organizations, unknowingly leave gaps in their financial systems. These weak spots may seem minor in daily operations but can create major red flags when an audit begins. 

The good news is that with proactive attention, you can identify and fix these issues before they cause year-end stress. This article highlights an internal control checklist for nonprofits, the four most common weak spots that surface during audits, and practical steps to address them. 

Building Confidence Through Strong Internal Controls 

At its core, nonprofit financial oversight isn’t just about compliance, it’s about trust. Internal controls are the invisible guardrails that protect your mission, your funding, and your reputation. When strong and consistent, they: 

• Reduce risks of fraud and error by creating checks and balances. 

• Strengthen donor and grantor confidence by showing funds are handled responsibly. 

• Improve transparency for the board, staff, and stakeholders. 

• Make audits smoother and less disruptive to your operations. 

Think of it this way: every grant application and donor conversation is strengthened when you can confidently demonstrate that your financial processes are both reliable and transparent. Controls aren’t just a safeguard—they’re a credibility builder that sets your nonprofit apart. 

1. Segregation of Duties: Too Much Power in One Place 

One of the most common weaknesses in nonprofit accounting is a lack of segregation of duties. When one person has too much control—say, recording donations, making deposits, and reconciling accounts—it creates unnecessary risks. 

For example, consider a small nonprofit where the same staff member records donor gifts, deposits checks, and prepares monthly financial statements. Even if the staff member is completely trustworthy, the lack of separation creates opportunities for mistakes or discrepancies to go unnoticed. 

Best Practice: 

• Split responsibilities wherever possible. 

• If staffing is limited, rotate tasks monthly or quarterly. 

• Involve a board treasurer or finance committee to review reconciliations. 

Even with a lean team, a second set of eyes can provide meaningful oversight without overcomplicating the process. 

2. Expense Approval Gaps: Missing Documentation and Inconsistent Processes 

Auditors often flag expense approval weaknesses—missing receipts, vague descriptions, or approvals signed after a payment is already processed. These gaps not only make it difficult to demonstrate compliance but also raise questions about fiscal discipline. 

Imagine applying for a grant renewal where the funder requests documentation of program-related expenses, but your expense files are incomplete. Even small oversights like an unsigned form can damage credibility. 

Best Practice: 

• Create a clear, written expense policy. 

• Require receipts and approval before payments are processed. 

• Use digital expense management tools to automate approvals and store receipts securely. 

A consistent, transparent process not only satisfies auditors but also builds accountability across the organization. 

3. Reconciliation Delays: Errors That Snowball Over Time 

Skipping or delaying reconciliations is one of the biggest red flags in a nonprofit internal control review. Without regular reconciliations, errors such as duplicate entries, missed deposits, or unauthorized transactions can go undetected for months. 

For instance, one nonprofit discovered during an audit that a restricted donation had been coded incorrectly in the general ledger six months earlier. Because reconciliations weren’t done promptly, the error snowballed, requiring hours of work to untangle—and creating tension with the grantor who funded the project. 

Best Practice: 

• Establish a monthly reconciliation checklist for all accounts: bank, credit card, and restricted funds. 

• Assign responsibility with clear deadlines and require leadership or board review of completed reconciliations. 

• Address discrepancies immediately rather than rolling them forward. 

Consistent reconciliations not only prepare you for audit season but also give leadership accurate, timely financial data for decision-making. 

4. Technology & Access Risks: Too Many Doors Left Open 

As nonprofits adopt more digital accounting and donor management systems, user access controls often get overlooked. It’s not unusual to find former employees with active system logins or staff members with full administrative permissions they don’t need. 

This creates risks both for errors and for fraud. For example, if an intern or junior staffer has unrestricted access to the accounting system, they could unintentionally (or intentionally) alter sensitive records. 

Best Practice: 

• Conduct a user access review at least annually—and ideally before audit season. 

• Remove outdated accounts immediately after staff transitions. 

• Limit system access based on role and enforce two-factor authentication for all users. 

Strong digital controls are just as important as financial policies on paper. 

Why Fixing Internal Control Weak Spots Matters Now 

Addressing weak spots in nonprofit internal controls isn’t just about making an auditor happy, it’s about protecting your mission. Nonprofits rely on donor trust, grant compliance, and financial stability to operate effectively. Weak controls can erode all three. 

By investing the time now to strengthen controls, you: 

• Enter audit season with fewer surprises. 

• Save staff time and reduce last-minute stress. 

• Present a stronger case for future grants and donor funding. 

• Protect your organization’s reputation and sustainability. 

Strengthening Internal Controls = Year-End Success 

Strengthening your nonprofit’s internal controls is one of the smartest steps you can take before year-end. It reduces audit stress, improves financial oversight, and builds the kind of trust that donors and funders look for. 

At HWA Alliance of CPA Firms, Inc., we specialize in helping nonprofits like yours close internal control gaps, reduce audit stress, and build systems that protect both funding and mission impact. 

With over 80% of our engagements supporting nonprofits funded by federal, state, and local sources, we understand the high level of accountability you face—and the importance of being audit-ready year-round. 

Here’s how we can help you prepare before audit season: 

• Review and strengthen your internal control framework 

• Identify weak spots before they become red flags 

• Improve compliance processes for grants and donor restrictions 

• Equip your team with practical, sustainable financial oversight strategies 

Ready to eliminate weak spots before audit season? Contact HWAA today to schedule your internal control review and start the year-end process with confidence.