Top 5 Internal Control Tips for New Entities in Higher Education

New direct support organizations (DSOs), athletics LLCs, real estate development entities and other affiliated higher education organizations are often created with ambitious missions and lean operational structures. Leadership teams are focused on fundraising, supporting institutional priorities, building programs and establishing credibility — usually with a very small staff. Internal controls can easily become secondary during those early stages, and that creates risk.

Startup organizations frequently manage significant financial activity long before they develop mature finance and compliance functions. Donations, sponsorships, grants, student-related expenditures, vendor relationships and restricted funds can all begin flowing through an organization before formal processes are fully established.

The good news is that strong internal controls don’t require a large accounting department from day one. What matters most is building scalable processes early, leveraging modern technology and creating oversight structures that can evolve as the organization grows.

Here are five of the most important internal control considerations for new entities.

1. Establish Governance and Approval Authority Early

One of the most common mistakes startup organizations make is delaying governance structure until operations become more complex. In practice, governance should come first. Even small organizations should clearly define:

• Who can approve expenditures
• Who can sign contracts
• Who can authorize payments
• Who reviews financial activity
• What requires board involvement

Without defined authority structures, organizations often fall into informal operational habits where approvals occur through text messages, verbal conversations or email chains with little documentation. That may work temporarily in a small environment, but it creates long-term operational and audit risk.

The COSO internal control framework emphasizes that the control environment (often referred to as the “tone at the top”) is foundational to an effective control structure. Startup organizations should establish:

• Delegation of authority policies
• Approval thresholds
• Conflict of interest policies
• Banking authority protocols
• Basic procurement expectations

The organizations that scale most successfully are typically the ones that create these structures before operational complexity increases.

2. Build Scalable Financial Processes Instead of Informal Workarounds

In their early stages, many new entities rely heavily on manual workarounds like spreadsheets, paper approvals, shared email inboxes, disconnected file storage or employee institutional knowledge. The problem is that temporary workarounds often become permanent operational processes. As organizations grow, those informal systems create inconsistent approvals, missing documentation, duplicate payments, weak audit trails and increased fraud risk.

Startup affiliated entities should instead focus on building scalable financial processes from the beginning, even if transaction volume is relatively small. That doesn’t mean implementing bureaucracy. It means establishing:

• Standardized invoice approval workflows
• Centralized document storage
• Monthly reconciliation procedures
• Consistent financial review processes

Organizations should also document policies and procedures early, even if those policies are initially simple. Scalable structure matters more than complexity.

3. Modernize Early

Outdated systems create risk and one of the biggest operational mistakes new entities make is delaying technology modernization until they become large enough. In reality, outdated systems and paper-based processes often create risk long before organizations realize it.

Many smaller entities still rely heavily on printed invoices, physical signatures, spreadsheets functioning as accounting systems or shared drives. These environments create the risk of lost documentation, cybersecurity vulnerabilities, manual errors and weak audit support. They also become especially problematic during remote work, employee turnover, audits or leadership transitions.

Modern cloud-based systems with workflow-based modules allow organizations to create stronger controls while remaining operationally agile. In addition to being an efficiency initiative, modernized solutions are also part of the internal control framework and can help in several areas, including:

• Automating approvals
• Centralizing documentation
• Maintaining audit trails
• Reducing manual processing
• Strengthening segregation of duties even with limited staff

Most importantly, these modern systems allow organizations to tailor approvals intelligently rather than creating slow, rigid processes. For example, low dollar routine purchases may only require department approval where larger or higher-risk transactions can automatically escalate to executive leadership or the board (if necessary). Approvals can be customized based on dollar thresholds, funding source, department, type of transaction or employee role. This creates stronger financial oversight without slowing down operations.

4. Establish Data Governance and AI Usage Guidelines

With modernized operations and limited staff resources, data automations and AI applications can help improve efficiency. This creates opportunity and risk. Even small organizations often manage highly sensitive information such as donor records, banking information, payroll data and student-related information. Without clear data governance expectations, organizations can unintentionally expose confidential information, weaken internal controls or create compliance and reputational risks.

This becomes especially important as employees increasingly use AI tools to draft communications, summarize meetings, analyze spreadsheets, create reports or assist with operational tasks. Many employees may not fully understand that publicly available AI platforms can create data security concerns if sensitive organizational information is uploaded into those systems.

Organizations of all sizes should establish clear AI and data governance expectations before informal habits develop. At a minimum, organizations should define:

• What types of information can and can’t be entered into AI tools
• Who is authorized to use AI platforms for organizational work
• How AI-generated outputs should be reviewed and validated
• What approvals are required before externally sharing AI-assisted content

Organizations should also create broader data governance standards around:

• Centralized file storage
• Document retention
• User access permissions
• Password and authentication standards
• Acceptable use of personal devices and cloud applications

Internal control frameworks like The Green Book increasingly emphasize information security, preventative controls and technology-related risks as core elements of effective control systems. Strong data governance is no longer just an IT issue. It’s a foundational operational and internal control issue. Organizations that establish thoughtful AI and data governance standards early are often better positioned to protect sensitive information, maintain trust, support compliance efforts, reduce risk exposure and scale technology usage responsibly as operations grow.

5. Scale Controls as Organizational Complexity Increases

One of the most important things a new organization must recognize is that internal controls should evolve alongside operational complexity. Organizations don’t need enterprise-level controls on day one. But they do need a roadmap for how controls will mature as transaction volume, staffing, visibility and operational risk increase.

An entity processing a limited number of transactions with a small team will naturally operate differently than an established organization managing multimillion-dollar fundraising campaigns, athletics commercialization or multi-use real estate development and operations. The key is ensuring controls scale before operational complexity outpaces oversight.

Control expectations should typically increase when organizations experience rapid revenue growth, larger vendor networks, additional employees, decentralized operations, expanded use of technology platforms, or heightened public and institutional scrutiny.

As organizations grow, they should gradually expand:

• Segregation of duties
• Approval hierarchies
• Financial reporting sophistication
• Budget oversight
• Compliance monitoring
• Cybersecurity protocols
• Management review controls

Scaling does not mean creating unnecessary red tape and bureaucracy. The most effective organizations build controls that align with actual operational risk, integrate naturally into workflows, support decision making and preserve agility. Strong internal controls should support organizational growth, not slow it down.

Final Thoughts

Newly formed higher education-related entities are often expected to move quickly while operating with lean staff, evolving infrastructure and growing financial complexity. That makes intentional internal control design essential from the beginning. Doing this early better positions organizations to support growth, strengthen stakeholder confidence, reduce risk and adapt as oversight expectations increase.

Importantly, startup organizations do not need a fully built-out finance department to create a strong control environment. Outsourced accounting and advisory support can provide a flexible solution, either temporarily during startup phases or long term as organizations scale. Leveraging outsourced support can help entities establish stronger processes, improve segregation of duties, modernize workflows and access experienced financial oversight before internal staffing structures fully mature.

Strong internal controls are not about creating bureaucracy. They are about creating operational discipline, accountability and flexibility to grow responsibly while staying focused on the mission.

As new entities navigate growth, governance expectations, technology modernization and operational complexity, having the right financial and operational infrastructure in place early can make a significant difference. James Moore’s Higher Education and Collegiate Athletics teams work with DSOs and affiliated entities to help design scalable financial processes, implement modernized systems and provide flexible outsourced accounting and advisory support.

Whether your organization is in the startup phase or preparing for its next stage of growth, our team can help you build a control environment that supports agility and long-term sustainability.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.