Assessing Nonprofit Risk
All organizations interact with people and therefore carry some amount of risk. Generally, potential risk for nonprofits falls into three basic categories: corporate compliance, employee and HR compliance, and programming/events. It’s important to consider risk in all three categories and take appropriate steps to mitigate that risk in advance.
Fortunately, there are specific things you can and should be doing in each area to assess your risk and, more importantly, protect your organization.
Corporate Compliance
Corporate compliance covers things like taxes and governance of your organization. They may not sound like exciting topics, but they’re very important for any organization that wants to understand and reduce their risk.
Taxes and paperwork
Paperwork is never fun, but it is necessary. Skipping paperwork can lead to losing your nonprofit status or paying penalties. The first step is making sure your nonprofit is set up the right way. Then you need to file your Form 990 and any other required filings and pay necessary taxes annually. Not filing or filing improperly is a risk to your nonprofit, but avoiding this risk is as basic as ensuring you file the correct reports on time every year.
Governance
Governance covers the basics of how your organization is run, including the structure of your board of directors and the policies and procedures you have in place. You need to be in compliance with any state and federal laws that apply to nonprofit organizations and with the bylaws of the organization. Is the board having meetings at regular intervals? Are minutes kept and made available for all meetings? Is the board fulfilling its fiduciary responsibilities? One of the reasons we do regular board trainings is to ensure the entire board understands what’s required in order to avoid risks related to governance.
Employee/HR Compliance
The interaction with employees and human resources is an important source of risk in any organization. And we’re not just talking about paid staff here—volunteers fall under this area of risk as well.
Volunteer Relations
Volunteers are a group of people conducting business on your behalf, and your interaction with them is protected by laws such as the Fair Labor Standards Act (FLSA) and Equal Employment Opportunity Commission (EEOC). Paid or not, how you treat people who are working for you matters. In order to mitigate any risk to your nonprofit, be sure to include all relevant labor and equal opportunity practices in your volunteer policies and procedures. Then abide by the policies you put into place.
“Paid or not, how you treat people who are working for you matters.”
Employee Relations
Paid employees add a little more liability and risk for your organization than volunteers do. All nondiscrimination laws and policies apply, but you also have to comply with laws regarding compensation. Nonprofits are not exempt from paying minimum wage. Take a look at your compensation practices and all of your policies and procedures to ensure you’re in compliance in order to reduce risk of penalties or lawsuits.
Programming & Events
The final area of risk for nonprofits varies the most from one organization to the next. All programming carries some amount of risk, but the form of that risk changes with the type of programming. Assessing this risk requires thinking through the groups your organization interacts with and the places your programming takes place.
For example, a nonprofit that works with children will need policies addressing mandatory reporting of suspected child abuse and other policies to ensure children are protected. A nonprofit that works with animals must comply with any animal welfare laws or other rules and procedures related to working with animals.
Events carry risk as well. To reduce event-related risk, you need to think about both liability waivers and insurance. In addition to having participants sign liability waivers, you may want to consider having any location that hosts your events sign a statement ensuring the safety of the facilities. General liability insurance protects you should any lawsuits arise that aren’t covered by your waivers.
It is important to work with a nonprofit lawyer when writing your liability waivers. Guidelines change over time, and a lawyer can be sure your documents include verbiage that offers broad coverage for changing guidelines. Working with an insurance agent that knows and understands nonprofit insurance is important as well to be sure your policy addresses the specific needs of your nonprofit.
Risk will always be a part of doing business, but proactively assessing and addressing the potential risk helps protect your organization. The most common way to reduce any of these risks is to address them in your policies. If you need help assessing your nonprofit’s risk and developing policies to reduce that risk, reach out to us today.
