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Strong internal controls are essential for charities to safeguard donated funds, ensure accurate financial reporting, and maintain the trust of donors, beneficiaries, and regulators. The following practices can help charities strengthen their financial governance:
Establish Segregation of Duties
Segregation of duties means no single person controls an entire financial process from start to finish. In practice, this means separating three key functions: authorising payments, holding custody of funds, and keeping financial records.
Even in small teams or organisations run largely by volunteers, spreading these responsibilities across different people reduces the risk of errors going unnoticed and makes it far harder for funds to be misused. It also gives donors and boards confidence that no individual has unchecked control over the charity's money.
Create Clear Approval Workflows
A defined approval process ensures every payment, reimbursement, or program expense passes through the right hands before money leaves the organisation. This might involve sign-off from a manager, a finance lead, or a board representative, depending on the size and nature of the expense.
Structured workflows do more than prevent unauthorised spending. They help confirm that every pound spent aligns with the charity's mission and reflects the intent of the donors who gave it.
Implement Dual Signatories for Bank Transactions
Requiring two authorised signatories for bank transactions, particularly for higher-value payments, adds a critical layer of verification. It means no single person can move significant sums without a second, independent check.
This simple control significantly lowers the risk of unauthorised transactions and gives stakeholders, from board members to regulators, reassurance that charitable funds are managed with the rigour they deserve.
Why does strong internal control design matter for charities?
Robust internal controls deliver benefits that extend well beyond compliance. They:
- Safeguard donated funds and charitable assets.
- Prevent fraud, misuse of funds, and operational errors.
- Ensure accurate and transparent financial reporting to donors, regulators, and stakeholders.
- Strengthen governance, accountability, and public trust in the charity.
For charities, trust is the currency that sustains every future donation. Strong controls protect that trust as much as they protect the funds themselves.
Take charge of your charity's financial governance
Are your charity's policies and procedures robust enough to safeguard funds, support good governance, and meet market practice? We understand the pressures charities face in balancing limited resources with the need for rigorous financial control, and we're here to help you navigate it.
Have a chat with us to see how we can review your policies and procedures and identify areas for improvement.
Frequently asked questions
Any charity handling donated funds benefits from these controls, regardless of size. Small teams and volunteer-run organisations may need to be more creative in dividing responsibilities, but the principles apply universally.
Without segregation of duties, a charity faces a higher risk of undetected errors or fraud, as one person can authorise, handle, and record transactions without any independent check.
No. Smaller charities often face greater risk, as limited staff can mean one person holds multiple responsibilities. Even simple steps, like requiring a second signatory for bank payments, make a meaningful difference.
Clear, well-documented controls give donors and regulators confidence that funds are managed responsibly, which supports long-term donor relationships and reputation.
