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;
• Naïve 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.

5 "Murphy's Law" Scenarios For Your Special Event

Murphy's Law dictates that anything that can go wrong will go wrong. Veteran special event planners swear by this rule, which is why they are always prepared for the worst possible scenario for their events. Paranoid? Maybe, but you can't argue they aren't being careful enough.

Special events inherently have an element of risk involved, explained Organic Events Founder Marika Holmgren in “Nonprofit Management 101.” While she wrote that there is no foolproof way to predict what issues will arise, that doesn't mean planners shouldn't prepare for every single scenario possible.

Holmgren identified five of the most impactful worst-case scenarios and suggested reviewing these and others to identify what needs to be done in each case and how to reduce the risk and liability of the organization:

• Event income or registration does not meet your goals, financial or otherwise;
• Natural disasters (hurricane, earthquake, etc.);
• Hotel strikes and boycotts;
• A key team member or event planner leaves the project; or,
• A keynote speakers falls through.

How To Minimize Risk From Employees

In the nonprofit world, risk usually comes from two sources: Employees or process.

According to Melanie Lockwood Herman in “Ready…Or Not: A Risk Management Guide for Nonprofit Executives,” process-based risks are much easier to handle. If there is something in the organization that isn't working, all you need to do is determine the best possible steps to address the issue.

Dealing with risk from employees is a little trickier.

As opposed to process risks, Herman said that people risks are best addressed through prevention, detection, and correction. This is done through these four steps:

• Creating policies and procedures that clarify job responsibilities and standards of permitted and prohibited conduct.
• Communicating the nonprofit’s policies through written policy materials, online resources, and in-person briefings. You should also consider making policies available in multiple formats.
• Designing employee and volunteer training to address key aspects of the job and recommended approaches for coping with adversity and undesirable circumstances.
• Holding all personnel accountable for the organization’s key risk management policies.

The Top 10 Nonprofit Risks

Every nonprofit would love to avoid risk all together. Unfortunately, that is not the world in which we live. Risk is everywhere and, in order to survive it, you must be prepared.

The first step to developing a good risk management plan is to understand the kind of dangers you will be facing. At a recent Risk Management and Finance Summit for nonprofits, Melanie Lockwood Herman of the Nonprofit Risk Management Center discussed the top 10 risks that are faces by nonprofits. They are:

• Financial loss. To prevent this, it helps to have a well-trained, well-informed board.
• Exposures from social media use, misuse and naivete. Risk-management strategies include written guidelines for employees, volunteers and members and a point person to monitor social media.
• Incivility. Investigate complaints without delay and hold staff and volunteers accountable.
• IRS Form 990 and federal tax-exempt status. Losing that status is really easy.
• Copyrights and trademarks. Use the copyright symbol. Use work-for-hire agreements with contractors. Respect the work of others.
• Failure to limit a contracting authority and other common mistakes in contracting. Develop a simple policy, clarify who has authority to enter one and obtain legal review, before signing.
• Lack of synchronicity in board policy and practice. Look at policies. Do they need changing?
• Failure to understand and manage conflicts of interest. Make sure the policy is easily understood.
• Fraud. Understand the inherent risks and fraud schemes.
• Harm to reputation. Remember humility (admit mistakes) and speed (without delay).

Zurich Webinar Highlights

UPDATE 12/12/2011: The slides and recording are now online.  You can see them in our online library.

****

Thanks to everyone who attended today's webinar on risk assessment and designing internal controls.  We once again send our thanks to Zurich, as they were instrumental in getting this webinar done.  We also want to send special thanks to our three speakers, Peg Jackson, Tom McLaughlin, and Susan Ellis.  They were all fabulous today.  If you were not able to attend the webinar, here are some of the things that participants learned:

• Boards must review Form 990 before it is submitted to the IRS.
• All boards should have an audit committee.
• The most functional board size is no more than 15 individuals.
• CEOs shouldn't receive compensation that is 25 percent more than the next highest paid executive at the nonprofit.
• If a volunteer does something seriously wrong--something that could put the organization at risk--it is within the rights of an organization to remove them.
• Make sure a volunteer can perform all tasks necessary before hiring.  They should be able to back up the skills they claim to have.

We will also be posting the slides and audio of the webinar on our online library within the next 24 hours.  Stay tuned.

Challenges In A Merger

For all the benefits of a potential nonprofit merger, it brings along as many risks and challenges.  How will existing departments function under the new management?  What will be the fate of current employees?  How will the merger be announced to the public?  These are all questions that can cause lots of headaches for nonprofit managements.  It's enough to make you reconsider going through with the merger.  Luckily, there's help on the horizon.

During the 2011 Risk Management and Finance Summit for Nonprofits, Eileen Morgan Johnson of Whiteford, Taylor & Preston LLP discussed the risks of nonprofit mergers and separations.  The NonProfit Times was in attendance for their tips, which included the following:

• Periodically review governing documents.
• If a potential conflict can't be avoided, make sure it is disclosed.
• Don't be afraid to request a legal opinion when the issue warrants it.
• Seek the advice of independent experts.
• Insist on thorough documentation. This includes board minutes showing discussion and reports, memoranda and other documents considered in decision making.
• Keep your employees informed of all new merger developments and provide ample opportunity for their feedback.  Nobody likes being kept in the dark.
• Make sure that your fellow directors get copies of all proposed agreements or summaries.
• Demand that board minutes accurately reflect votes.

Want to read the rest of the tips?  Read the full article over at The NonProfit Times.

Nonprofit Management Tip: Creating A Safe Workplace

Creating a safe workplace is one of the most important things to accomplish when dealing with risk management.  When accidents happen, people get hurt, and insurance is needed.  And insurance costs money.  One of the best ways to ensure your office is one your employees don't dread coming to is to constantly ask for feedback.  This was covered in of NPT's most recent management tips:

* Invite feedback, including complaints. Send a clear message that ideas on improving the safety of the workplace are welcome.


* Banish assumptions. Assuming that policies and procedures are understood and followed is unwise.


* Provide training. Workplace training should address general safety as well as topics specific to areas or departments.


* Look for root causes instead of simple answers when accidents or near-misses occur. Opportunities to learn from mistakes are missed because of the tendency to blame or look for “simple” explanations.


* Reach out for help. Consider inviting an insurer to inspect the premises to identify opportunities to improve safety.

Want to read the entire article?  Head on over to our website, and learn how you can make your nonprofit a safe one!