Nonprofits Must Manage Risk

Nonprofit boards of directors are responsible for risk management in their organizations. Larger nonprofits may have staff to carry out the risk management function, but for most small nonprofits, this falls to the board of directors, with the assistance of the executive director if there is one.

What is risk?

At its simplest, “risk” means “the possibility or chance of loss, danger or injury”. Risk generally involves harm of some type along with uncertainty. To manage risk, the board must identify:

  • What can go wrong?
  • Can it be prevented?
  • Can we insure against it?

Some sources of risk include:

  • Program, such as providing professional, such as counseling or child care, or other services, classes (art, music, cooking), etc.
  • Accidents, slip-and-fall, motor vehicles; transporting students, etc.
  • Acts and omissions, such as failure to warn of a danger, defamation, failing to perform an act or service, etc.
  • Breaches of duty, particularly with regard to board members’ fiduciary duties.
  • Employment, such as discrimination, wrongful discharge, other personnel actions. (Most claims against nonprofits derive from employment matters.)
  • Finances, such as mishandling or misappropriation of funds.
  • People, volunteers, clients, contractors, the public, etc.
  • Disasters, natural or otherwise.

Insurable risks include:

  • Loss of assets
  • Injury
  • Interruption of service
  • Litigation

Unininsurable risks include:

  • Loss of audience or membership.
  • Loss of funding, such as cuts to state budget, or termination of a grant.
  • Social or scientific changes that eliminate the need for a service (e.g., March of Dimes).
  • Increased competition.

A key component of every nonprofit’s risk management program is insurance. Join us for a presentation by Jeffrey Pelletier, Commercial Account Executive with the Sylvia Group, as he explains the particular insurance needs of nonprofits on Wednesday, February 24, at 6:00 pm, at the Legal Center for Nonprofits, located inside the Inter-Church Council House at 412 County Street, New Bedford, MA. Cost to attend is $10 per person. Pre-registration is recommended. Call (508) 264-5996 or email to Linnea@LegalCenterforNonprofits.org for more information or to pre-register.

 

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