Thursday, August 29, 2013

The Top 10 Risks Facing Nonprofits

Risks are everywhere these days. Whether they are known or unknown, they pose a threat to your nonprofit and the first step to successful risk management is knowing your enemy.

In materials provided to the AICPA Not-for-Profit Industry Conference, Melanie Lockwood Herman, executive director of the Nonprofit Risk Management Center, talked about the most serious risks that organizations face on a daily basis. She presented a top 10 list of the most damaging risks. They are:
  • Uncertainty regarding financial sustainability. The less cash on hand, the greater the danger when revenue is late or unreliable;
  • Ineffective fiscal and risk oversight;
  • Incomplete appreciation of fraud risk. There are three general kinds: against the nonprofit, by the nonprofit and through the nonprofit;
  • Allowing a leader/staff member/volunteer to be “above suspicion.” A casual glance through the news should be enough to put this one to rest;
  • Lack of succession planning. On average, boards spend two hours a year on CEO succession planning;
  • Ineffective departure planning and execution. Nothing lasts forever;
  • Na├»ve crisis planning. People don’t get to choose the source or cause of their next crisis;
  • Dissatisfied donors (poorly understood/managed donor relationships);
  • Unmanaged conflict on the board; and,
  • Lack of practical (well-understood) governance practices. This can cover every conceivable item, from conflict of interest through gift acceptance, and anything in between.

1 comment:

Whitney Godwin said...

I think the first risk point is just understood. Many of Today's nonprofits depend highly on grant support that does not cover things such as general operations. Many nonprofit organizations use their funds for service programs leaving little funding to manage general operations. Without investing in their organization, it's almsot impossible for them to improve what they're doing. I think organizations need to focus on not only serving, but improving their services. They have to focus on themselves a bit in order to help others more. By improving themselves the nonprofit can produce higher-quality content and services. It seems like a no-brainer. However, I do realize that many organizations are strapped financially, but when money is available they should invest some into the organization rather than spending it all on serving.

I also thought the point about "allowing a leader/staff member/volunteer to be above suspicion" is crucial. This happens so frequently because we want to believe the best in people. More often than not, especially in smaller nonprofits, checks and balances systems can fall through the cracks due to lack of time, knowledge, and manpower. Keeping the checks and balances system in place is key to keeping any organization running smoothly, especially smaller nonprofit organizations.

I enjoyed the insights in this post, and I think many nonprofit organizations would benefit from remembering these. I also recently read an article called "On The Money" (http://www.philanthropynw.org/s_pnw/bin.asp?CID=13221&DID=30189&DOC=FILE.PDF) that goes more in-depth about some of these comments on this blog. I found it very useful.

Whitney Godwin
whitneylynngodwin@gmail.com
whitneylynngodwin.wordpress.com