Know thy enemy –
Understand risks and how to mitigate them
Not For Profit Risk Management is key for nonprofitS organizations. They are encouraged to plan for several risks.These include wrongful employment practice claims, higher employee turnover and problematic partnerships. Financial risks may be the most obvious threats to the well-being of nonprofits, but these organizations need to worry about other risks as well — from their reputation in the community to their volunteers’ conduct. If you don’t have a comprehensive risk management plan, your nonprofit may be courting unnecessary danger.
Identify your risk list: The first step is to identify your organization’s greatest risks. Some are common to most nonprofits, such as Dishonest staff, volunteers, donors or clients, financial losses, threats to physical and intangible property, unexpected departure of key employees and Revocation of tax-exempt status.
Prioritize financial threats!
Managing and protecting financial resources is the biggest challenge for most nonprofits, so start building your risk management plan there. Address any acts that could lead to the loss of value of financial assets — including theft, fraud, misuse of funds, poor investment decisions and inappropriate selection of sponsors and partners. Then establish policies and procedures to prevent such losses.
Don’t do it alone.
Don’t try to develop a risk management policy alone. To ensure you’re covering all the bases, involve your board, managers, insurance company, legal counsel and financial advisors. Depending on the risk, you might also want to talk to staff members and volunteers for a ground-level perspective.If, for example, your organization serves children, you can’t afford to overlook a single risk. Some measures may seem obvious, such as obtaining liability waivers from parents, conducting criminal background checks on adults who will work with the children and maintaining up-to-date records of the children’s allergies and medications. But have you considered a photo-taking policy? What about procedures to follow in the event of an accident? Do staff members and volunteers know what to do if they spot a stranger lurking outside your playground?After you develop a detailed plan to address such risks, communicate it to staff and volunteers and provide training, if necessary. Also keep in mind that risk management is an ongoing process, so your nonprofit should continually review and revise policies and procedures to address emerging risks.
Be covered, it never hurts!
Insurance also helps nonprofits offset risk. Aside from general (or commercial general liability) policies, some specialty products are available, including property,accident and injury, auto, product liability (if your nonprofit sells anything to the public), directors and officers (D&O), and professional liability (malpractice). An insurance professional can help you decide which policies you need and provide information about limits, deductibles and cost.Of course, insurance won’t solve all of your risk issues. Tax-exempt status and fundraising capacity can’t be protected by insurance. And not even the best or most inclusive insurance policy will help you repair damage to your reputation. That’s why you need a complete risk management plan in place to complement your insurance coverage.
The bottom line?
Risk management is a complex undertaking. You likely already have some policies and procedures in place, but to ensure you’ve taken steps to mitigate the biggest and most costly risks, consult with your financial and legal advisors.