Running a not-for-profit (NFP) often means wearing many hats.
Committee members volunteer their time and skills to keep things running smoothly and sometimes that includes helping with administration or finances.
But when committee or board members are directly involved in processing payroll or payments, it can create governance, compliance, and transparency risks. Even with the best intentions, blurred lines between governance and operations can expose the organisation and its committee to serious issues.
Here’s why it matters, and how to protect your organisation.
1. Governance and Conflicts of Interest
Committee members are meant to oversee, not execute, financial processes. When they process payroll or payments, they may end up approving transactions involving themselves or close contacts, creating clear conflicts of interest.
In serious cases, this could breach a committee member’s legal duty to act in the organisation’s best interests.
Best practice:
- Separate payment processing from approval responsibilities.
- Ensure no one authorises their own pay, reimbursement, or related transactions.
2. Weak Internal Controls
When one or two people handle banking, payroll, and approvals, there’s little room for oversight. Even small mistakes can go unnoticed, and weak controls can damage credibility with donors, members, and auditors.
Best practice:
- Require two signatories for all payments.
- Have an independent bookkeeper or accountant review payroll reports.
- Reconcile accounts regularly and maintain clear documentation.
3. Blurred Lines Between Governance and Operations
In smaller NFPs, committee members often “pitch in.” But when that extends to bookkeeping or payroll, it shifts focus away from the committee’s core purpose strategy, oversight, and accountability.
Best practice:
- Clearly define roles and responsibilities in governance policies.
- Where possible, engage an external bookkeeper for day-to-day transactions and an accountant for quarterly or annual reporting.
4. Transparency and Public Confidence
Even if everything is done correctly, perception matters. Members, donors, or regulators may question why a committee member is managing payments, especially when it involves reimbursements or wages for themselves or relatives.
Best practice:
- Disclose related-party transactions and payment authorisations in monthly/regular board meetings with documented minutes and annual reports.
- Maintain open communication about financial governance and accountability.
5. Legal and Regulatory Compliance
NFPs must comply with state and federal regulations, including financial reporting and conflict-of-interest requirements. Poorly managed financial processes can result in investigations, penalties, or personal liability for committee members.
Best practice:
- Review your financial governance policies regularly.
- Document all approvals and decisions.
- Ensure compliance with your constitution, ACNC obligations, and funding agreements.
The Bottom Line
Strong governance builds trust, but it also protects your organisation. When committee members stay focused on oversight, not administration, they uphold the integrity of the not-for-profit and the community it serves.
If your committee currently handles payroll or payments, now’s the time to review processes, strengthen internal controls, and clarify roles. A few small changes can greatly improve transparency, compliance, and reputation.
Need help reviewing your not-for-profit’s financial governance?
Call Hopscotch for a confidential chat on 1300 HOP 123.
