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lead to the attainment of organizational goals and objectives. When properly
designed, such controls should lead to better performance because an organization is
[1]
able to execute its strategy better. As shown in the the P-O-L-C framework figure,
we typically think of or talk about control in a sequential sense, where controls

(systems and processes) are put in place to make sure everything is on track and stays
on track. Controls can be as simple as a checklist, such as that used by pilots, flight
[2]
crews, and some doctors. Increasingly, however, organizations manage the various
levels, types, and forms of control through systems called Balanced Scorecards. We
will discuss these in detail later in the chapter.
Organizational control typically involves four steps: (1) establish standards, (2)
measure performance, (3) compare performance to standards, and then (4) take
corrective action as needed. Corrective action can include changes made to the
performance standards—setting them higher or lower or identifying new or additional
standards. Sometimes we think of organizational controls only when they seem to be
absent, as in the 2008 meltdown of U.S. financial markets, the crisis in the U.S. auto
industry, or the much earlier demise of Enron and MCI/Worldcom due to fraud and
inadequate controls. However, as shown in the figure, good controls are relevant to a
large spectrum of firms beyond Wall Street and big industry.
The Need for Control in Not-for-Profit Organizations
We tend to think about controls only in the for-profit organization context.
However, controls are relevant to a broad spectrum of organizations, including
governments, schools, and charities. Jack Siegel, author of A Desktop Guide for
Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good,
outlines this top 10 list of financial controls that every charity should put in place:
Control 1—Require two signatures for checks written on bank and investment
accounts. This prevents unapproved withdrawals and payments.
Control 2—The organization’s bank statements should be reconciled on a
monthly basis by someone who does not have signature authority over the accounts.
This is a further check against unapproved withdrawals and payments.
Control 3—Since cash is particularly susceptible to theft, organizations should
eliminate the use of cash to the extent possible.
Control 4—Organizations should only purchase goods from an approved list of
vendors. This provides protection from phony invoices submitted by insiders.
Control 5—Many charities have discovered “ghost employees” on their
payrolls. To minimize this risk, organizations should tightly control the payroll list by
developing a system of reports between payroll/accounting and the human resources
department.
Control 6—Organizations should require all otherwise reimbursable expenses
to be preauthorized. Travel and entertainment expenses should be governed by a
clearly articulated written policy that is provided to all employees.
Control 7—Physical inventories should be taken on a regular and periodic
basis and then be reconciled against the inventories carried on the books. Besides the
possible detection of theft, this control also provides a basis for an insurance claim in
the case of a fire, flood, or other disaster.

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