What are Internal Controls

00:03:59
https://www.youtube.com/watch?v=750q-ADn8Bg

Summary

TLDRIn this video by Alex from Appos Academy, the focus is on understanding and setting up internal controls for nonprofits and churches to prevent fraud and protect both assets and people involved. Internal controls are processes designed to provide safeguards against fraudulent activities within an organization. The analogy of a chain is used to describe how internal controls must be linked and fully functional, as a failure in one could compromise the entire system. Through examples like fundraiser events, Alex explains the importance of having proper internal controls, such as separating duties among individuals to prevent misuse of funds and establishing accountability. The video outlines questions nonprofits should consider when setting up internal controls, such as tracking donations, ensuring the accuracy of deposits, and verifying proper record entry. The video hints at a comprehensive course on this topic, and an upcoming discussion on pertinent accounting rules and standards.

Takeaways

  • 🔗 Internal controls act as a chain - a break in one link compromises the whole.
  • 🛡️ Protect both assets and people from fraud through internal controls.
  • ⚖️ Separate duties within financial processes for better security.
  • 📊 Ensure accuracy in financial entries and reporting.
  • 📅 An entire course on internal controls is coming soon.
  • 🕵️‍♀️ Effective controls prevent false accusations against staff.
  • 🏦 Example: Have different people handle counting, depositing, and recording money.
  • ❓ Key questions help establish effective internal controls.
  • 🔍 Transparency and proper documentation are essential.
  • 📘 More information available in detailed content below the video.

Timeline

  • 00:00:00 - 00:03:59

    Alex from Appos Academy introduces the concept of internal controls for nonprofits, emphasizing their importance in safeguarding assets and preventing fraud. Internal controls are likened to a chain where each link represents a component of the control system; if one link fails, the integrity of the entire system is compromised. Examples include controls during a nonprofit fundraiser to ensure all donations are accounted for correctly. The key takeaway is the role of internal controls in protecting both the organization's assets and its people, ensuring transparency and accountability in financial processes. A brief mention is made of an upcoming course focused on internal controls.

Mind Map

Video Q&A

  • What is an internal control?

    An internal control is a process implemented to protect a nonprofit's assets and associated individuals from fraud.

  • Why are internal controls important for nonprofits?

    Internal controls prevent fraud by safeguarding assets and ensuring trust in those handling finances.

  • How do internal controls work like a chain?

    Internal controls function as a system of linked processes, where the failure of one can compromise the entire system.

  • Can internal controls protect individuals as well as assets?

    Yes, they ensure that individuals are not wrongly accused by providing clear accountability and process separation.

  • What happens if internal controls fail?

    Failure of internal controls can lead to asset mismanagement and potential fraud.

  • Who typically benefits from internal controls?

    Nonprofits and their stakeholders benefit by securing assets and ensuring trustworthy governance.

  • What example was given about internal controls?

    An example of a fundraiser with cash donations was discussed to illustrate implementing internal controls.

  • How are internal controls set up in the fundraiser example?

    Controls include having two people count money, another individual deposit it without withdrawal access, and separate entries in accounting systems.

  • What additional information can viewers find on the topic?

    Viewers are encouraged to read more detailed content provided below the video.

  • What is the upcoming topic in the next video by Alex?

    The next video will cover accounting rules and standards for nonprofits.

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  • 00:00:01
    [Music]
  • 00:00:07
    hey this is Alex from appos Academy
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    today we're going to take a look at
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    internal controls what they are how do
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    you set them up and how they can benefit
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    your nonprofit if you work for a
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    nonprofit or a church this is the course
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    for you so what's an internal control an
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    internal control is a process that you
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    put in place that protects your
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    nonprofits assets and the people
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    involved in your nonprofit the sole
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    purpose of an internal control is to
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    protect your organization against fraud
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    a nonprofit won't only have just one
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    internal control but rather a whole
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    system that provides safeguards for your
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    nonprofit so think of internal controls
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    as a chain little links that when
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    connected are very strong but if one of
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    the links breaks the whole thing is
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    compromised same thing with internal
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    controls if you have a system of
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    internal controls in place and one of
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    them fails the whole system is
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    compromised let's take a look at an
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    example let's say your nonprofit throws
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    a fundraiser which has a donation bucket
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    that attendees can put money into at the
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    end of the fundraiser the money is
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    collected counted and deposited to the
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    bank this income also makes its way into
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    your accounting records which is then
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    reported on an income statement to show
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    whether or not the fundraiser was
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    profitable you with me so far these are
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    the questions you're going to need to
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    ask when creating internal controls for
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    this fundraiser how much money was
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    donated who counted the money how much
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    money was deposited was the deposit
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    amount the same as what was counted how
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    do you know if the accounting record was
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    entered correctly each of those
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    questions has an answer and each of the
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    answers represents an internal control
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    that should be set up remember like a
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    chain if one of these is broken the
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    entire thing is compromised so to say
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    the person who counted the money took
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    some without internal controls around
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    that process there would be no way of
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    knowing if they took the money or not
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    your nonprofit's assets which is the
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    cash that was donated has been
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    compromised as has the reputation and
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    integrity of the person counting the
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    money if a proper internal control was
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    in place the money would be accounted
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    for properly and the person counting
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    would be above reproach another example
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    is let's say the person that deposited
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    the money was the same person who
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    recorded the deposit in the accounting
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    system if they decided to take some of
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    the money before it was deposited and
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    they're the one recording it in the
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    accounting system it would be it's too
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    impossible to catch these examples go on
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    and on but remember the sole purpose of
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    internal controls is to protect your
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    assets and your people against fraud
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    with a complete internal control system
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    you can rest easy knowing that your
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    assets and your people are protected so
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    a side note about having internal
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    controls protecting your people it makes
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    sense with your assets but why do you
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    need to protect your people well the
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    people involved in counting the money
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    depositing the money recording the
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    entries all that different stuff need to
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    be protected as well what happens if one
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    of them makes a mistake and then people
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    are investigating with a solid internal
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    control system you can make sure that
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    that person isn't accused of doing
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    something that they didn't have any
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    access to do so for instance if the
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    person depositing the money into the
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    bank will call him Dennis doesn't have
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    access to withdraw the money Dennis can
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    never be blamed for taking money out of
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    the bank so using the example of the
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    fundraiser let's say that people are
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    counting the money depositing the money
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    recording it in the accounting system
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    and generating a report the internal
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    controls will be this two people count
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    the money let's say Megan and kadye
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    Megan and Katie count the money and then
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    give it to JN who runs it to the bank
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    and deposits it John doesn't have any
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    access to actually withdraw money from
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    the bank so he can't be accused of
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    taking the money in the first place then
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    finally Brandon records the entry in the
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    accounting system and generates a report
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    showing the whole process today we took
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    a really brief look at what internal
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    controls are and down the road we're
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    actually going to create an entire
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    course around this topic so stay tuned
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    next time we're going to take a look at
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    the accounting rules and the accounting
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    standards that you need to adhere to as
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    a nonprofit until next time make sure to
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    read the content below because it goes
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    into a lot more information on what we
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    talked about today and be
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    awesome
  • 00:03:35
    hey Molly welcome hi this is Academy
  • 00:03:39
    guess so what you got there I got a
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    chocolate muffin for me yeah is it just
  • 00:03:46
    a great job thank
  • 00:03:50
    you you guys have great on screen
  • 00:03:52
    chemistry yeah it was
  • 00:03:54
    [Music]
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    Electric
Tags
  • Internal Controls
  • Nonprofit
  • Fraud Prevention
  • Asset Protection
  • Nonprofit Governance
  • Accountability
  • Financial Management