Pacific Business News

September 9, 2005

How nonprofits can reduce their financial risks

by Sally Little

Nonprofits face risks everyday that can result in financial losses for the organization.

Mitigating these risks requires careful planning to identify when and where an unexpected risk might occur.

Once a risk is identified the board of directors and/or the management staff may decide to avoid the risk, modify an activity to make it safer, retain some of the risk by holding a large deductible on their insurance policy or share the risk with other parties. For example, if your organization allows other nonprofits to use your facilities, your organization may require these nonprofits to show proof of insurance and name your organization as an additional insured.

Although insurance is a necessary element in any risk management plan, insurance will not address all the risks a nonprofit may encounter. For example, loss of reputation is not covered by insurance, and this loss could result in a substantial reduction in donations.

In addition, claims made can raise your insurance policy premiums. Increased premiums can present significant challenges for nonprofit budgets that are already stretched. One small nonprofit’s worker’s compensation premium increased from $3,300 to $21,110 because of a slip/fall and lifting injury.

The following tips will help you address some of the risks your nonprofit may encounter.

* Purchase Employment Practices Liability Coverage. This insurance covers discrimination, sexual harassment, wrongful termination and wrongful denial of training lawsuits among others. The number of employment lawsuits against nonprofits exceeds all other forms of litigation. Whether the employee or the employer receives favorable resolution through dismissal of the case, settlement or litigation, the impact on the balance sheet and morale of the staff can be substantial.

* Develop a conflict of interest policy. Have your policy reviewed by an attorney and approved and enforced by the board of directors. Neither nonprofit management liability insurance nor directors and officers insurance will cover an employee or director who gains profit or advantage that they are not legally entitled to.

* Protect your reputation. Individual donors, foundations and corporate sponsors give to organizations they trust. Unfortunately, bad news travels fast and tends to stick. Rebuilding confidence may take many years and your financial bottom line may suffer.

Treat your employees and volunteers fairly and with respect. Disgruntled employees and unhappy volunteers also damage your reputation. They are your ambassadors to the community. Make sure their message is positive and encourages support for your organization.

< font size="1" face="Verdana" color="#000000">* Use good judgment when planning special events. Know the liability your organization might incur if alcohol is served. Also, check with your insurance agent about purchasing special-event insurance. Your general liability insurance may not cover these occasions.

Make sure the special event reflects the values and mission of your organization. Remember you may have press coverage for your event and will want to make sure that the integrity of your organization is well represented.

* Institute a monthly site safety check. Walk through your offices or program spaces and look for possible hazards. This includes floor coverings and desks and chairs that are unstable. Also, enter your building on the same path as your customers and clients. Many employees enter their work site through parking garages or employee entrances and never check out the customer entrances.

* Safeguard the health of your employees. Keep your kitchens and lunchrooms clean. Make sure your employees take their vacations. Be mindfu l of your employees work loads. Stressed workers are more injury prone. Prevent repetitive stress injuries, such as carpal tunnel syndrome. If necessary, bring in a consultant to determine whether your computer equipment and chairs are ergonomically correct. Send sick employees home, and set a good example for employees by staying home when you are sick.

* Establish computer safeguards. Donor and client databases are vital assets for nonprofits. Remember to keep your virus and firewall software updated. Consider storing these databases electronically at off-site locations. This storage will protect against loss due to fire, theft or natural disaster.

It is not possible for nonprofits to eliminate or avoid every risk. However, staff, volunteers and boards of directors should be vigilant for possible hazards that may damage your reputation, cause illness or injury or result in property loss.

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