Nonprofit Risks

Posted on Wednesday, February 19, 2020

To be a successful nonprofit organization, management must be aware of risks and how those risks could affect its mission and goals. A nonprofit must have a plan to deal with possible threats that will cause harm. It must have an approach in place to recognize risks and a strategy to face those risks.

In order to address risks, you must first be aware of what risks are facing your organization. Let’s discuss some common risks many nonprofit organizations face.

Revenue concentration. Does your organization receive a significant amount of support from a single donor or a small number of donors? What would your organization do if you suddenly lost this support?
Compliance. As a nonprofit, your organization must comply with many requirements in order to maintain its exempt status. From the annual filing of Form 990 to payroll forms and contribution substantiation, nonprofits must make sure there is a process in place to meet these reporting requirements. In addition, many funders and government entities require strict reporting for their grants. Is management aware of all compliance requirements that apply to your organization? Has your organization met all of these requirements? What if you don’t?
Segregation of duties. Many nonprofits who have a small staff and even many larger organizations with limited accounting staff, struggle with segregating duties. Proper segregation of duties limits the opportunity for someone to commit fraud within the organization. Does your organization have proper segregation of duties between authorizing transactions, reporting transactions, and maintaining custody of assets? Could someone commit fraud within your organization?
Staffing. Often times nonprofits must compete with for profit businesses that pay higher wages and offer more benefits. In addition, many nonprofits need part-time staff for certain programs that makes it more difficult to fill. Is your organization properly staffed? What if you can’t find adequate staffing? How will this affect your programming?
Volunteers. Many nonprofits rely on volunteers to raise awareness of their organization, help with fundraisers and even participate in some programming activities. Are your volunteers properly trained for their responsibilities? Do they go through an orientation process? Is there a process for vetting and accepting volunteers?
Security. Security includes both physical and cyber. Is your office safe for both employees and visitors? Nonprofits collect a significant amount of information about donors, volunteers and program participants. Is confidential data kept secure with limited access? Is your organization’s computer system secure? Could someone hack into the organization’s online data?
Restricted funds. Many donors provide support through restricted funds that can only be spent for a specific purpose. Do your staff understand the restrictions placed on funding? What if your organization cannot meet these restrictions?
Reputation. An organization’s reputation is its most valuable asset. How is your organization perceived by the community? Donors? Volunteers? Do you have a social media strategy that includes how the organization responds to comments?

After you have identified possible risks, you will need to determine the likelihood that they will occur and how they will imipact your organization. How will your organization prevent these risks from negatively affecting your mission? Are there additional procedures that need to be put in place? Do you need to make changes to current procedures or even the organization’s structure? Do you need to seek additional help from outside professionals (insurance companies, accountants, lawyers, etc.)?

It’s always better to have a plan in place and not have to use it then to not have a plan and need one.

Posted by: Carrie Minnich, CPA

Posted in Mission Minded Nonprofits

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.