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Control 8—Every organization should develop an annual budgeting process.
The nonprofit’s employees should prepare the budget, but the board should review
and approve it.
Control 9—Organizations should use a competitive bidding process for

purchases above a certain threshold. In reviewing bids, organizations should look for
evidence of collusion.
Control 10—Organizations that regularly received grants with specific
requirements should have someone who is thoroughly versed in grant administration.
Retrieved January 30, 2009,
from http://www.charitygovernance.com/charity_governance/2007/10/ten-financial-
c.html#more.
The Costs and Benefits of Organizational Controls
Organizational controls provide significant benefits, particularly when they
help the firm stay on track with respect to its strategy. External stakeholders, too,
such as government, investors, and public interest groups have an interest in seeing
certain types or levels of control are in place. However, controls also come at a cost.
It is useful to know that there are trade-offs between having and not having
organizational controls, and even among the different forms of control. Let’s look at
some of the predominant costs and benefits of organizational controls, which are
summarized in the following figure.
Costs
Controls can cost the organization in several areas, including (1) financial, (2)
damage to culture and reputation, (3) decreased responsiveness, and (4) botched
implementation. An example of financial cost is the fact that organizations are often
required to perform and report the results of a financial audit. These audits are
typically undertaken by external accounting firms, which charge a substantial fee for
their services; the auditor may be a large firm like Accenture or KPMG, or a smaller
local accounting office. Such audits are a way for banks, investors, and other key
stakeholders to understand how financially fit the organization is. Thus, if an
organization needs to borrow money from banks or has investors, it can only obtain
these benefits if it incurs the monetary and staffing costs of the financial audit.
Controls also can have costs in terms of organization culture and reputation.
While you can imagine that organizations might want to keep track of employee
behavior, or otherwise put forms of strict monitoring in place, these efforts can have
undesirable cultural consequences in the form of reduced employee loyalty, greater
turnover, or damage to the organization’s external reputation. Management
researchers such as the late London Business School professor Sumantra Ghoshal
have criticized theory that focuses on the economic aspects of man (i.e., assumes that
individuals are always opportunistic). According to Ghoshal, “A theory that assumes
that managers cannot be relied upon by shareholders can make managers less
[3]
reliable.” Such theory, he warned, would become a self-fulfilling prophecy.
Less theoretical are practical examples such as Hewlett-Packard’s (HP)
indictment on charges of spying on its own board of directors. In a letter to HP’s
board, director Tom Perkins said his accounts were “hacked” and attached a letter
from AT&T explaining how the breach occurred. Records of calls made from

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