Risk Management for Nonprofits

The coronavirus pandemic continues to have a significant impact on all industries, including nonprofit organizations. However, it is important that your organizations continue to pay attention to everyday risks.

While adequate insurance—directors and officers liability or property and casualty coverage, for example—is essential to managing risk, your organization must also assess activities that, if poorly managed, might get in the way of its mission.

Managing risk for a nonprofit organization often includes three main areas: money, people, and reputation. You need a plan to address them with appropriate policies or procedures, including adjustments for pandemic operations.

Money & Financial Management

Fundraising—as well as fund management—is a big focus for nonprofit risk managers. The laws governing solicitation are complex and require high levels of record keeping.

For example, with so many donations being collected online, you might need to register in more states than previously considered. In-kind donations, especially real property, are another area of potential risk because not all nonprofit organizations can properly conduct the due diligence necessary to assess value and environmental liability.

Fundraising events can have a high reward if everything goes according to plan. To mitigate risk, there should be an event director supported by a dedicated committee to review safety, logistics, communication, and coordination. The committee should also evaluate the need for special event insurance.

In terms of financial management, internal controls, including separation of duties, should also be in place to adequately control the risk of fraud and waste. Budgets prepared by staff or partners with strong financial backgrounds will provide an accurate picture of the organization’s financial risk, and an internal controls study can illuminate areas of concern regarding fraud.

Pandemic considerations: Are there sufficient internal controls to address risks if your finance, accounting team, and development are working remotely? Do you need additional information technology security tools, such as two-factor authentication, secure VPN, and secure paperless document management systems? Is your process for approving disbursements (wires, ACHs, and checks) robust enough to detect unauthorized transactions?

Volunteers & Employees

Volunteers are the backbone of nonprofit organizations. For many, volunteers not only provide the means of delivering the main service or mission but also provide guidance and management through board membership.

In either case, the mere dedication of these people cannot be the only determinant of success. All volunteers should meet certain criteria clearly communicated through policy. For example, if your organization involves volunteer interaction with children, background checks and a strong child protection policy must be in place.

Volunteer education is also important. Volunteers should be onboarded with some form of mandatory training—whether it’s how to safely sort food during a shift at a food bank or how to appropriately communicate with other board members during a service term on the board.

People attracted to employment opportunities at nonprofit organizations might be motivated by the notion of carrying out a greater good. This idea may unfairly translate into an expectation that a nonprofit would be a more nurturing, supportive, and easygoing place to work.

However, effective nonprofit organizations are just as strict with their human resource policies as they are with their financial policies. The board must regularly review and update employment policies, job descriptions, performance evaluations, employee handbooks, and whistle-blower protection policies.

Pandemic considerations: How will you replace volunteer hours if the pandemic limits volunteer access to your organization? What changes need to be made to volunteer responsibilities in a socially distanced environment? What changes need to be made to volunteer onboarding so that it is conducted successfully remotely?

Reputation Preservation

While other risks can be covered with specialized insurance, your reputation cannot. A strong reputation improves demands for services, volunteer and donor support, and options for partnering.

To reduce reputational risk, leaders must create and maintain open and trusted communications with all constituents and staff. If a reputation-damaging event does occur, a well-prepared crisis management plan and public relations partner can help mitigate risk after the fact. Of course, a proactive approach is always better.

Pandemic considerations: Do you need additional internal tools to allow for open communication with constituents and staff in a remote environment?

Finally, a quick word about cybersecurity, which has reached new risk levels with people working remotely during the pandemic: At a minimum, every organization should require annual cybersecurity training for employees and volunteers who have access to the network.

We Can Help You Manage Risk

In today’s ever-changing regulatory climate, the right guidance is more important than ever. With diverse experience across many industries, Holtzman has earned a strong reputation for delivering a full suite of Audit, Consulting, and Tax Services (ask us about an internal controls study!) to nonprofit organizations in a customized, risk-based manner to help our clients achieve their financial objectives and strengthen their accounting processes. With clients ranging from startups to large and mature nonprofit organizations, we dedicate ourselves to delivering stellar results for our clients. Learn more about us and Get in touch.

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