It is important that the governing body of a not-for-profit entity maintains an effective internal control structure over its activities. The governing body has responsibility for ensuring that all fundraising and other revenues to which the not-for-profit entity gains control are accounted for properly. This involves establishing controls to ensure that cash donations are recorded correctly in the financial records of the entity, and that the revenue recognised in the financial report is calculated in accordance with Australian Accounting Standards and the entity’s accounting policies adopted for revenue recognition^[1]. Many aspects of a not-for-profit's control environment and individual control procedures will be the same as those of a for-profit business entity. However, the internal control structure for a not-for-profit entity is likely to be affected, to varying degrees, by the following factors:

1. limited resources being available to achieve internal control objectives, as generally a not-for-profit entity keeps administrative staff and management tools to a minimum so that resources are allocated to activities that will help achieve its mission;
2. the likelihood that volunteers will be involved in the not-for-profit entity. The involvement of volunteers can range from serving in a voluntary capacity on the not-for-profit entity’s governing board to daily involvement in the entity’s operations or management, including performing accounting and fundraising functions;
3. the culture that underlies various facets of the control environment, including attitudes towards the importance of accountability, how authority and responsibility are assigned, and personnel management policies and practices;
4. the existence of any externally imposed requirements by governments, contributors, or national or international bodies affiliated with the not-for-profit entity that may require certain control procedures be implemented, such as ensuring that government grants are only expended / recognised in accordance with a grant agreement or certain expenses are approved by the governing body;
5. the regulatory requirements relating to its fundraising activities;
6. the existence of accountability requirements over operations in the form of key performance indicators, for example the ratio of organisational and fundraising expenditure to fundraising revenue, or cost of fundraising to funds raised; and
7. where third party specialist fundraisers or other non-controlled entities e.g. branches or associates, undertake fundraising on behalf of a not-for-profit entity (under a documented agreement).

The auditor may also need to consider any obligations under ASA 265 Communicating Deficiencies in Internal Control to Those Charged with Governance and Management to communicate significant or other deficiencies in internal control while performing the audit.