When the federal government changed the rules for grant management at the end of 2013, there was a little noticed change that occurred. Internal controls for nonprofits moved from a finance concept wrapped around the annual audit to an administrative requirement involving the direct program staff, finance, and management. In other words, internal controls moved out of the dusty halls of accounting and became everyone’s responsibility.
Big change for internal controls!
Whenever you’re implementing a big change in an organization, whether it’s strengthening internal controls or implementing a new software system, it is critical to have a strategy and get buy-in across all areas of the organization and not just rely on a few decision makers to ensure a smooth transition. Change is hard and building a strong internal controls structure when there has not been one previously takes time. That’s why I want to spend some time talking about building habits and values throughout all levels of the organization to increase organizational buy-in.
Here are 7 practices for building an internal control structure that will increase buy-in and stand the test of time.
1. Strive for integrity and transparency
“A single lie destroys a whole reputation of integrity.” –Baltasar Gracian
Demonstrating integrity and transparency starts at the highest levels of the organization and flows down layer by layer. Senior management and the board set the “tone at the top.” This is where the expectations for the organization are set and reinforced. Without integrity and transparency from the highest level, even the most committed employee will become discouraged and disillusioned.
A strong first step in building this practice is to communicate consistently, starting with the hiring process, that integrity and transparency are valued by the organization and expected of the employees.
2. Set clear expectations
“It is easier to prevent bad habits than to break them.” –-Benjamin Franklin
Clarity, like common sense, is often an elusive quality in today’s busy environment. One simple way to make sure everyone is clear about what is expected of them is to ask questions.
- Does John know who is responsible for completing this control activity?
- Is Jane clear that Joe must authorize this purchase order before the purchase is made?
- If there is a concern about compliance, who should be contacted to resolve the issue?
In other words, does each employee know:
- What is expected of them?
- What they expect of each other?
- What they can expect from management?
Setting clear expectations up front will smooth the implementation, support needed improvement, and integrate multiple levels of staff into the process of strengthening internal controls.
3. Build relationships for organizational buy-in
“Trust is the glue of life. It’s the most essential ingredient in effective communication. It’s the foundational principle that holds all relationships.” –-Stephen Covey
In the same way donors and funders need to trust the organization, employees must also believe in the change – or, at a minimum, not resist the change – to increase organizational buy-in.
Here are five tips for building relationships and increasing trust:
- Make sure words and actions align
- Communicate a consistent message
- Deliver on promises
- Demonstrate respect for others
- Nurture open communications
Investing time in developing stronger relationships will pay dividends in trust and grease the wheels of buy-in to strengthen internal controls.
4. Follow through with commitments
“You must be the change you wish to see in the world.” –-Mahatma Gandhi
Integrity is a key component of building and maintaining trust. And a culture that follows through with commitments is building a culture of integrity ready to support strong internal controls.
Here are 3 ways to follow-through with commitments:
1. Delegate effectively. Encourage a culture where people can make decisions, are trusted to use good judgement and have the discernment to know when to ask more questions before taking action.
2. Confirm the objective is understood. Clear communication is a two-way process and it is easy for instructions and goals to be misunderstood. Check to make sure everyone is on the same page and it is agreed upon who is responsible for taking the next step.
3. Promote ownership. This means bearing the risks and benefits of actions. An ownership culture recognizes the importance of both accountability and reward for making good decisions and implementing them as well.
5. Educate others
“Training is everything. The peach was once a bitter almond; cauliflower is nothing but cabbage with a college education.” –Mark Twain
Education is really communication in disguise. Too often we assume people know what to do when they have received little or no guidance on what’s expected of them. As I train staff on the responsibilities of grant management, I’m constantly amazed how few have received training on the requirements for managing millions of dollars of funding.
For people to support strengthening of internal controls they must first understand what that means and how supporting the implementation, improvement and integration of these activities is relevant to their jobs.
Similarly, to build trust among funders, they need to be educated on how the organization protects their trust with strong internal controls. If you are committed to building trust by strengthening internal controls, what is your plan to educate others?
6. Communicate consequences
“You cannot escape the responsibility of tomorrow by evading it today.” –-Abraham Lincoln
The same way an internal controls structure without sufficient monitoring is wishful thinking, not reality, getting organizational buy-in without communicating consequences is expecting results with a key part missing.
When things are broken, they need to be fixed. There must be a price to pay when policies are ignored or circumvented. Whether you are a federal grant recipient explaining proper time charging for the grants or a nonprofit educating staff on the disciplinary consequences for accepting vendor gifts, everyone needs to understand that misbehavior will have real consequences.
7. Reward improvement
“Success is simple. Do what’s right, the right way, at the right time.” –-Arnold H. Glasow
Finally, just like there are consequences for not adhering to the requirements of a strong internal controls structure, there should also be positive reinforcement when improvement is observed. Take time to celebrate the victories when trust grows, people do what they are supposed to and problems are detected and corrected.
- Recognize individuals and department
- Celebrate the wins
- Encourage others to model similar behavior
It’s never too late to catch someone doing something right!
To learn more about how to implement a strong internal controls structure at your organization, make sure to read the whitepaper, How to Build Trust with Strong Internal Controls.