cash handling procedures for nonprofits

As a nonprofit organization, you handle a lot of cash on a regular basis. From donations to event proceeds, cash is an important part of your operations that needs careful management to ensure accountability and accuracy. However, cash handling procedures might seem daunting, especially if you are new to running a nonprofit or not familiar with finance. But fear not, we are here to guide you through the process and provide you with some tips and best practices to handle cash securely and efficiently.

Cash Handling Procedures for Nonprofits: Best Practices You Must Follow

Managing cash is one of the most vital functions of a nonprofit organization, as donations and fundraising activities are its primary source of income. However, the responsibility of handling cash is not just limited to the finance team; it is also the responsibility of every staff member who comes in contact with cash. Nonprofits must follow some standard cash handling procedures to reduce the risk of fraud, embezzlement, errors, and financial mismanagement. In this article, we will cover the best cash handling practices for nonprofits.

The Importance of Cash Handling Policies and Procedures

Having well-crafted cash handling policies and procedures are essential for a nonprofit organization. These policies ensure that the funds, which are intended to achieve the organization’s mission, are secured, recorded accurately, and used for authorized purposes. Below are some reasons why nonprofits should have cash handling procedures in place:

– To minimize the risk of fraud and embezzlement
– To protect the organization’s reputation
– To maintain accurate records and financial transparency
– To establish accountability and internal control
– To comply with legal and regulatory requirements

Develop Cash Handling Policies and Procedures

Nonprofits should develop a written cash handling policy that should cover:

– Who is authorized to handle cash: The policy should identify who is responsible for handling cash and under what circumstances. It is vital to have a clear segregation of duties, meaning that no one individual should have control over all aspects of the cash handling procedures.
– Cash handling process: The policy should describe the process for collecting, counting, and depositing cash. It should also specify who is responsible for performing each task.
– Approval Authority: The policy should detail the approval requirements for expenditures and disbursements of funds.
– Record-keeping and reconciliation: The policy should establish the records and document the procedures that should be followed to track cash transactions, reconcile accounts, and ensure accountability.
– Training: The policy should outline training requirements for employees who will be handling cash.

Perform Regular Audits

Performing regular audits is vital to ensure that the cash handling procedures are functioning correctly. Nonprofits should conduct internal control evaluations and audits periodically to identify weaknesses in the cash handling process and address them promptly. An external audit by a certified public accounting firm is also recommended to ensure the completeness and accuracy of the financial statements.

Never Use Cash Funds for Personal Use

Nonprofits should prohibit the use of cash funds for personal use, as this is a direct violation of nonprofit regulations. Money should be used for authorized purposes only; using funds for personal gain can lead to legal consequences and damage the organization’s reputation.

Segregate Duties

It is essential to segregate duties to reduce the risk of fraud and embezzlement. No one individual should have control over all aspects of handling cash. Make sure that employees are assigned to specific tasks and that no one employee is responsible for an entire cash handling process.

Use Technology to Your Advantage

Nonprofits can reduce the risk of fraud by implementing technology solutions. Using software like accounting, point-of-sale, and donor management systems can help automate processes, reduce errors, and provide a record of every cash transaction.

Secure the Cash Environment

The nonprofit should ensure that the cash environment is secure. Cash, checks, and other financial instruments should be stored in a safe, with access limited to authorized personnel only. The safe should be located in a secure place and secured by a combination or a key lock. Nonprofits should also have methods in place to secure the transportation of cash, such as bank bags, tamper-evident seals, or armored transport, when transporting cash to the bank.

Regularly Monitor

The nonprofit should regularly monitor cash handling procedures and the individuals responsible for the process. This ensures procedures are being followed correctly, detects any unusual activity, and takes prompt action if problems arise.

React to Issues Quickly

Nonprofits should prioritize prompt action if issues arise. If an issue occurs, it should be reported immediately to the appropriate management personnel so that the appropriate response is taken. This ensures that the cash handling process is consistently followed, and mistakes identified are corrected, reducing the risk of fraud and improving the organization’s financial controls.

The Bottom Line

Following proper cash handling procedures is crucial for maintaining accountability, transparency, and financial integrity. Nonprofits should ensure that their cash handling policies and procedures are well-documented, enforced, and regularly audited to prevent fraud, embezzlement, and financial mismanagement. By implementing these best practices, nonprofits can protect its reputation, ensure financial stability, and maintain donor trust, which is critical for achieving its mission.

Understanding the Importance of Cash Handling Procedures for Nonprofits

Nonprofit organizations are different from businesses, as their main aim is to serve their respective communities through activities that lead to positive social outcomes. However, as nonprofit organizations also have income and expenses, it is crucial for them to establish proper cash handling procedures to keep track of their finances, maintain transparency, and prevent fraud. In addition, nonprofits rely heavily on donors and grants to fund their activities, which makes it all the more important to ensure that their money matters are handled appropriately. Here are 10 subheadings that cover the essential elements of cash handling procedures for nonprofits.

Cash Handling Policies and Procedures Overview

Policies and procedures are the foundation of any cash handling system. A cash handling policy is a written document that defines how an organization handles cash and cash equivalents. It outlines the proper procedures for handling cash, how cash is collected, deposited, and distributed, and who is responsible for those tasks. Your organization should have in place a written policy and procedures manual that explicitly outlines how cash shall be collected, recorded, reported, stored, transported, and safeguarded. If your organization does not have a policy in place yet, make sure to consult with experts to help you develop one.

Cash Controls and Segregation of Duties

Cash controls and segregation of duties are essential in preventing fraud and errors. The segregation of duties is the practice of dividing the responsibility for handling cash among different employees or departments. This will significantly decrease the likelihood of fraud since no one employee will have complete control over the cash handling process. Implementing controls around cash transactions is also important, and these must be defined in your organization’s policy and procedures manual. Controls should be put in place to reduce the risk of error, misuse, or theft.

Cash Receipting Procedures

Cash receipting procedures are put in place to ensure that donations and other cash received are properly acknowledged, recorded, and deposited into your organization’s accounts. Document the procedures your organization should follow to receive cash donations and grants, including the required information that should be collected during the transaction. There should be a clear process to follow, for example, issuing a receipt to donors, ensuring that the donations would be recorded properly in your system, and outlining how to deposit the cash into your bank account.

Deposits and Cash Disbursement Procedures

Deposits and cash disbursements are also crucial components of cash handling procedures for nonprofits. Your organization must have a set of written standard procedures for deposits and cash disbursement. A deposit procedure describes how checks and cash will be secured, transported, and deposited into bank accounts. The cash disbursement procedure outlines how cash should be withdrawn from bank accounts and disbursed for expenses. It is important to follow the standard procedures to avoid any discrepancies or errors in recording your organization’s financial statements.

Cash Safeguarding and Storage Procedures

The safety and security of cash are also important factors in cash handling procedures for nonprofits. Your organization must consider how to safeguard and store cash transactions and donations. This may include assigning a specific location to store cash, locking mechanisms, or installing a security system. In addition, ensure that everyone who handles cash transactions understands the proper storage procedures that should be followed to protect your organization’s cash funds from being stolen, misused, or lost.

Internal Controls Over Cash Handling

Internal control over cash handling is an important component of ensuring that your organization’s cash handling procedures are effective. Internal controls include security measures that an organization puts in place to prevent or detect fraud, errors, and other cash handling issues. These include having a clear organizational structure, assigning responsibilities to employees, and implementing procedures to ensure that cash handling tasks are properly executed.

Cash Reconciliation Procedures

Cash reconciliation involves comparing the amounts of cash listed on your organization’s cash balance sheet with the actual cash on hand. This process will help identify any discrepancies such as missing cash or over and under deposits. Reconciling cash is essential, and the procedure should be outlined in your organization’s cash handling policy and procedures manual.

Cash Flow Monitoring and Forecasting

Cash flow monitoring is a vital component of cash handling procedures for nonprofits. Your organization should track its inflows and outflows of cash using financial tools such as cash-flow statements, budgeting, and forecasting. Keeping track of cash flows will help ensure that your organization has the resources it needs to maintain its operations.

Training and Development of Staff

Developing cash handling procedures for nonprofits requires the participation of all stakeholders in the organization. This includes staff who will be directly involved in handling cash. Your organization should provide adequate training and development programs to ensure that all employees are aware of the proper cash handling procedures. The training program should be ongoing to refresh employee knowledge as the need arises.

Periodic Review and Evaluation of Cash Handling Procedures

Periodic review and evaluation of your organization’s cash handling procedures are crucial to ensure that they continue to be relevant and effective. An audit of your organization’s cash handling procedures will help identify any weaknesses or areas that need improvement. Regular reviews of cash handling procedures should be conducted to ensure that existing policies and procedures are up to date, effective, and meet the needs of your organization.


In conclusion, developing a robust cash handling procedure for nonprofits is a crucial step towards securing your organization’s financial transactions and preventing errors and frauds. A comprehensive strategy can help ensure the proper handling of the charity’s cash flows; maintain transparency, and eventually help attract more donors. Your organization should review its cash handling policies and procedures regularly to ensure that they remain effective, and all staff employed by the organization understand their roles in meeting these expectations.

Cash Handling Best Practices for Nonprofits

Nonprofits rely heavily on donations and grants to further their missions. With proper cash handling procedures in place, nonprofits can safeguard their finances, prevent fraud, and maintain the trust of their donors. Here are some best practices to follow:

Establish Clear Cash Handling Policies

Clear policies on cash handling should be established and implemented. It should state how cash should be received, handled, deposited, and accounted for. The policy should also state who is responsible for each step of the process, and how to handle cash discrepancy or shortage.

Segregate Duties

To prevent fraud, it is important to separate duties related to cash handling. For example, the person who receives cash should not be the one responsible for recording it, and the person who records cash should not be the one who makes deposits. This system of checks and balances can create an extra layer of security in the system.

Train Employees and Volunteers

Training staff and volunteers on the proper cash handling procedures is essential. This ensures that everyone is aware of the policies and knows how to follow them. It also helps to identify possible areas of risk, such as accepting checks from unknown sources, and how to mitigate those risks.

Use Technology to Your Advantage

There are several technological solutions that can help nonprofits manage their finances and reduce the risk of fraud. For example, using a cash counting machine to count money reduces the risk of human error. Also, using a secure online donations portal to accept donations can eliminate the need for manual cash handling.

Regularly Conduct Audits and Reviews

Regularly conducting audits and reviews of cash handling procedures can help identify gaps and areas that need improvement in the system. An audit could involve an independent third party who examines the organization’s financial records and reports any discrepancies or errors. The audit is an opportunity to provide feedback and recommendations to all those involved in handling cash.

Overall, following these cash handling best practices can help nonprofits maintain financial stability, increase donor trust, and safeguard against fraud. With the proper policies, procedures, and technology in place, nonprofit organizations can focus on their mission and succeed in the long run.

Benefits of Good Cash Handling Procedures
1. Reduces the risk of fraud
2. Promotes transparency and accountability
3. Increases donor trust and loyalty
4. Protects the organization’s reputation

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So, there you have it! These are some cash handling procedures that can help keep your nonprofit organization financially sound and secure. Remember, even though these might seem like simple steps, they can greatly reduce the risk of fraud and errors, and make sure that your donations go where they need to go. Thanks for reading, and don’t forget to check back for more useful tips and insights from us. Have a great day!

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