Nonprofit financial controls aren’t the most exciting topic in the grant world — but they might be the most important one. At Tillman Equity, our team brings a perspective that most grant consultants simply don’t have: our CEO, Trina Nichols, spent more than 20 years as an internal auditor at a Fortune 500 company, reviewing and building the exact financial controls we now help nonprofits implement.
That experience has taught us something fundamental: funders evaluate your financial credibility before they evaluate your programs. And the organizations with strong financial controls don’t just win more grants — they keep funders coming back year after year.
If you’re a small nonprofit preparing to apply for grants, this is the guide your organization needs.
What are financial controls and why do funders care?
Financial controls are the policies, procedures, and practices your organization uses to manage money responsibly. They answer questions like: Who can authorize spending? How are expenses approved and documented? Who reconciles the bank statements? Is there oversight over the person handling the money?
Funders care about financial controls for the same reason investors care about corporate governance: they want to know their money is safe. When a foundation or government agency awards your organization a $10,000 or $50,000 grant, they’re trusting you to spend it exactly as you promised, track every dollar, report accurately on how funds were used, and prevent misuse, whether intentional or accidental.
Organizations without financial controls are high-risk investments. Organizations with strong controls are safe bets. It’s that simple.
The five essential controls every nonprofit needs
Our financial analysts have distilled the most important controls into five areas. These aren’t complicated, and even the smallest nonprofit can implement all of them.
Control 1: Separation of duties. This is the single most critical financial control, and it’s the first thing auditors and funders look for. No single person should have complete, unchecked control over your finances. The person who writes checks should not be the same person who approves expenses. The person who handles deposits should not be the same person who reconciles the bank statement.
For small nonprofits with limited staff, separation of duties can be achieved through board involvement. Have the treasurer review bank statements monthly. Require two signatures on checks above a certain amount. Have someone other than the bookkeeper approve expense reports. These are simple steps that dramatically reduce risk.
Control 2: Written financial policies. Your organization should have a written document that outlines how money is handled — who can approve expenditures and up to what amount, how purchases are authorized, how petty cash is managed, how credit cards are used and monitored, and how financial records are maintained and stored.
This document doesn’t need to be 50 pages. For most small nonprofits, two to five pages of clear, practical policies is sufficient. What matters is that the policies exist, are approved by the board, and are actually followed.
Control 3: Regular financial reporting. Your board should receive financial reports at every board meeting — at minimum, a statement of financial position (balance sheet) and a statement of activities (income statement) comparing actual results to the budget. This keeps the board informed and provides ongoing oversight.
Monthly financial reviews — even if it’s just the treasurer reviewing the bank statement and expense report — create accountability and catch errors or irregularities early.
Control 4: Documentation and record-keeping. Every financial transaction should have supporting documentation — receipts, invoices, contracts, payroll records. These records need to be organized and accessible, not stuffed in a shoebox.
If a funder or auditor asks to see the documentation behind a specific expense, you should be able to produce it within minutes. Our team recommends a simple digital filing system organized by month and expense category.
Control 5: Budget monitoring. Your board-approved annual budget isn’t just a planning tool — it’s a control mechanism. Actual spending should be compared to the budget regularly (monthly is ideal). Significant variances should be investigated and explained. If a line item is running over budget, the board should know about it and approve any reallocation.
For grant-funded programs, budget monitoring is even more critical. Grant funds must be spent in accordance with the approved grant budget, and most funders require you to get permission before reallocating funds between categories.
What happens when controls are missing
Our CEO has seen it from both sides — as an auditor reviewing organizations that didn’t have adequate controls, and as a consultant helping nonprofits fix the damage after something went wrong.
When financial controls are missing, the consequences can include grant funds being misspent or poorly tracked, leading to funder clawback requests. Audit findings that damage your reputation and eligibility for future funding. Board members being held personally liable for financial mismanagement. Loss of tax-exempt status in extreme cases. And the everyday reality of simply not knowing where your money is going.
None of these outcomes are inevitable. They’re all preventable with basic controls that cost nothing to implement — just time and commitment.
How to get started today
You don’t need an expensive consultant or a CPA to implement financial controls. You need clear policies, consistent practices, and board-level oversight.
Start with these three actions this week. First, check your separation of duties. Is one person handling all the money? If so, involve a second person or board member in at least one step of the financial process. Second, write a one-page financial policy. Cover who can approve expenses, how purchases are authorized, and who reviews the bank statement. Have your board approve it at the next meeting. Third, start monthly financial reporting. Even a simple spreadsheet showing income, expenses, and bank balance — reviewed by the board monthly — creates accountability.
For a comprehensive system built by our team’s financial analysts with Fortune 500 audit experience, our Financial Compliance Toolkit ($97) includes everything you need: internal controls checklist, financial policies template, audit preparation guide, board treasurer orientation guide, and a monthly financial review checklist. It’s the only product in this market that brings this level of expertise to small nonprofits.
If you want hands-on help setting up your financial systems, book a Power Hour ($100) and our CEO will walk you through the process in a focused, personalized session.