No matter how well a non-profit is governed, the risk of experiencing a loss is very real. Losses can lead to the reduction of services or even the dissolution of the organisation altogether. A non-profit can experience a wide range of losses, from financial ones that involve fraud to unforeseen acts that result in the loss of assets. Regardless of the variation of the loss, it is important that board members work to minimise their potential impact by developing a comprehensive risk management plan.
Managing Your Organisation’s Ongoing Risks
Assess the Risks
The first step in reducing risk is to take the time to identify the actual ongoing risks that your non-profit faces on a daily basis. Auditing your non-profit’s processes can show where the risk of loss might occur.
There are three risk categories within the non-profit sector: the financial, legal and intangible risks that deal with the non-profit’s reputation.
1. Financial losses can involve acts of internal theft, such as embezzlement, diversion of public funds, or even identity theft. In addition to these criminal acts, other risks include losses from bad investments, the loss of grants, or even losing a major donation from a regular contributor
2. Losses can happen as the result of the services and activities offered by your non-profit. Often, this sort of risk involves the safety of people such as those in your administration, board, staff, volunteers, donors, service recipients and other stakeholders. Additional legal risks can arise from specific incidents. This includes losses to buildings, vehicles and property, which are usually the result of damage that occurs during an event. While weather-related losses often occur, they can also happen as a result of an accident, such as a fall that causes injuries, or when an unplanned event occurs suddenly, such as a fire.
3. Some risks involve intangible losses, such as the risk of damage to the non-profit’s reputation. Damage to a non-profit’s reputation can be significant if it leads to the withdrawal of public support. This kind of loss tends to occur after another loss, such as fraud.
After you have identified your non-profit’s vulnerable areas, you can begin to make plans to reduce the chance that the loss will occur, or minimise its financial impact to the non-profit should it happen.
Customise and Design Your Risk Management Plan
Once you’ve identified the areas of greatest risk, your non-profit will need to devise a plan to reduce the likelihood of these types of losses occurring, or, take steps to transfer the risk. For example, you can reduce the likelihood of some financial and legal risks by taking steps to ensure that your staff and volunteers are properly vetted before they are hired and then providing training.
Changing the way that the non-profit operates can also help to reduce the risk of loss. A good example of this is establishing control procedures for the handling of assets such as cash. When the risk of loss cannot be reduced by changing the way that the non-profit operates, an insurance policy can lessen the impact of any potential loss. You can also spread the risk out through diversification. An example of this is diversifying your non-profit’s sources of income so that you take less of a hit should you lose a donor or grant.
Implement the Plan
Once you have a plan to reduce your risks, it’s important that it be put into effect. Determine which risks are the most likely to occur, and make dealing with those first the priority. Assign responsibility for specific areas of the plan and establish deadlines for each part of the plan to be put into force.
Don’t Forget to Review and Update the Plan
Over time, it’s likely that your non-profit’s risks will change. Conduct regular reviews of your risk management plan on a quarterly and annual basis to see if the checks and balances that you’ve installed are working. Don’t forget to update insurance policies, especially when the value of your non-profit’s assets changes.
Nothing is carved in stone so don’t be afraid to make changes to your plan, but constantly be on the lookout for ways to reduce your non-profit’s risk of loss. Boards can learn more about how to develop and implement a risk management plan by using Volunteer Australia’s helpful risk management tool, Running the Risks.
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