Risk management for nonprofits involves more than just buying liability insurance and hoping for the best. A sound approach to risk management requires nonprofit managers and board members to make identifying, assessing, and preventing risks a priority for the organization.
What are some risks that nonprofits need to think about?
Risks will vary for each nonprofit based on their activities. An organization providing services for youth will face risks very different from a private foundation that distributes grants. Here are some to review.
- Governance risks – Is the board being diligent in overseeing the organization? Are they making decisions that are reasonable?
- Financial risks – Are financial best practices being utilized to prevent fraud and ensure accurate bookkeeping? [Click here to read about a recent news story involving accusations of nonprofit theft.]
- Legal risks – Are laws and regulations being adhered to regarding human resources, donations, grants, etc? [Click here to learn about a recent news story involving a nonprofit under investigation for allegedly spending donated funds improperly.]
- Reputation risks – What risks will damage the reputation of the organization? Will this affect our ability to carry out our mission?
What are some of the steps in developing a proactive approach to risk management?
- Identification and Assessment – What are the potential risks for this organization? What is the probability of a specific risk occurring? What would be the magnitude of damage of this potential risk occurred?
- Monitoring – How will our organization determine if a risk is about to occur?
- Reporting – What happens once a risk occurs? Will other staff members be notified? Will the board be notified?
- Mitigation – How will the situation be handled?
- Evaluation – How well did the organization handle past risks? What can be done to improve? Is the organization subject to new risks?
- The Board of Directors is legally responsible for the nonprofit organization. Unless limited by the Certificate of Formation (also know as Articles of Incorporation) or the bylaws, the directors likely are responsible for managing the affairs of the nonprofit organization. They generally are legally accountable for its actions. Select a board that can help the nonprofit avoid and manage risk: Forming a Nonprofit – Public Charity: Step 3: Recruit Directors.
- Reviewing a board’s duties: Nonprofit Law Basics: What are the Duties of Directors?
- Insurance. Information on Director and Officer Insurance & General Liability Insurance for Nonprofits: Nonprofit Law Basics: Are Nonprofit Directors Liable? What is D&O Insurance?
The Cullinane Law Group works exclusively with the nonprofit sector. We set up and maintain strong and legally compliant nonprofits that have solid bases for long-term success. We provide risk management and offer practical solutions for sound governance. We help nonprofits, foundations, religious organizations, and social entrepreneurs throughout the United States who seek to create positive change.