Mitigate Nonprofit Risks Before They Happen

As audit time approaches for a nonprofit organization, it’s an ideal time to begin looking at potential risks and finding ways to mitigate them ahead of the auditing team.

However, the most effective approach is to maintain a proactive stance on risk assessment and mitigation throughout the year—not just ahead of an audit. This way, nonprofits can ensure smooth operations while avoiding many of the common pitfalls that can lead to significant challenges.

So, what are the most common risks associated with running a nonprofit organization, and how can they be effectively identified and mitigated? Let's explore the key factors.

What are the Common Risks in a Nonprofit?

Nonprofits, by their very nature, are exposed to a number of potential risks in their day-to-day operations. That's because nonprofits are mission-driven, rather than being focused solely on generating revenue. People and causes are prioritized over financial gains. While this focus is admirable, it can sometimes lead to certain risks being overlooked.

Across the board, some of the most common risks among nonprofit organizations include:

• Fraud
• Internal theft
• Cybersecurity breaches
• Regulatory compliance issues

These risks have the potential to cause significant financial and reputational harm to the organization. In severe cases, the impact can be so devastating that some nonprofits may never fully recover.

How to Mitigate Risks in a Nonprofit

Despite the many risks that surround nonprofit organizations, the good news is that there are steps that can be taken to mitigate and prevent risks with enough foresight and planning. Here are a few key steps that all decision-makers should take when it comes to mitigating the risks associated with running a nonprofit.

Determine the Most Likely Risks

First and foremost, organizational leaders and stakeholders should meet to identify and assess the most pressing risks facing the nonprofit at a given time. These risks could be related to cybersecurity issues, fraud, theft, compliance or just about anything in between. Having risk assessment specialists available to conduct an operational analysis can be especially useful not just in identifying all potential risks, but also in prioritizing them and determining which may be most likely to occur.

Create Actionable Mitigation Plans

Next, it's time to come up with a plan to mitigate risk through internal controls, policies and procedures that can be implemented and carried out across the board. This part of the process can be easier said than done, but there are plenty of effective internal controls that can make all the difference.

For example, a nonprofit looking to reduce the risk of fraud or internal theft may choose to implement a policy where checks over a certain amount of money need to have two signatures in order to be submitted. Other risks (such as cybersecurity risks) may be mitigated through the addition of new security protocols, such as multi-factor authentication.

Provide Proper Education and Training

Even once risk mitigation protocols are in place, it's important to understand that these protocols may not be effective if all stakeholders are not properly trained and educated on how to follow them. This will require some initial investment of time and resources to ensure that all team members are on the same page and following new procedures appropriately.

Assessing and Making Changes as Needed

Nonprofit leaders should realize that a risk mitigation strategy is never really complete. After new protocols and procedures are implemented, risk mitigation specialists and other professionals should be measuring the success of these changes when it comes to lowering risk. For instance, if a new policy is not having the desired impact on reducing risk, it may be time to make further adjustments.

The Bottom Line on Nonprofit Risk Mitigation

The importance of risk mitigation in running a nonprofit cannot be overstated. Unfortunately, identifying the most likely risks to an organization isn't always easy, nor is putting a plan into place to mitigate risks effectively. Nevertheless, there are plenty of risk mitigation and assessment specialists who can assist with practically every aspect of this crucial work.

By implementing effective risk mitigation practices, nonprofits can avoid many common challenges while fostering a more productive and positive work environment. This enables organizations to stay focused on what truly matters: serving others and advancing their shared mission.

To learn more about LGT and how we can serve you, contact us here.