Why Your Nonprofit Board Needs a Risk Committee
It’s a well-known concept that you can’t have opportunities without risks. In the current nonprofit world, risks abound. According to an investigative report from The Washington Post in 2013, more than 1,000 nonprofit organizations stated that they’d had a significant diversion of assets that stemmed from internal sources between 2008 and 2012.
With cyber threats continually looming over nonprofit organizations, organizations that are committed to the advancement of nonprofit organizations, like Independent Sector, Standards for Excellence® Institute, District of Columbia Bar and Public Counsel, and the Human Services Council of New York, have made public statements that it’s a duty of nonprofits to gather, evaluate and respond to risks in a defined, routine way.
Committees save nonprofit boards time because they have the time to commit to doing research on complex problems such as risk management. By providing boards with comprehensive information on risk management, boards can operate more efficiently because they have the benefit of recommendations by the risk management committee.
Benefits of a Risk Management Committee for Nonprofit Organizations
Nonprofits must understand the risks and opportunities in front of them in order to understand their true priorities. Risks can greatly affect strategic planning efforts, and it’s crucial for boards to understand what risks are looming before they can make plans for the organization’s future.
Today’s donors are looking for assurance that nonprofits will exercise effective stewardship over the funds that they and others are contributing. Nonprofits should be forward-looking in their strategic plans so that they can also plan for future sustainability.
Insurance has long been one of the main ways that nonprofit organizations have relied on to mitigate or transfer risks. While insurance remains important, the prevalence and the potential for risks is high enough that nonprofit organizations need risk management committees to manage risks in other ways.
Creating a Nonprofit Risk Committee
Nonprofit boards must take all the same appropriate steps for risk management committees as for other types of committees. They need to set up a charter, establish its purpose and compose a committee. Risk management committees are usually standing committees.
A risk management committee should have a committee charter that has a clear statement of its purpose. The charter should outline the committee’s membership, how members will be appointed and their terms of service. The committee’s authority should be clear. Usually, a risk management committee will have authority to approve policies or make recommendations to the executive director and the board.
Boards should expect risk management committees to set realistic goals. For example, appropriate goals may include improving risk awareness, setting up a risk management plan, creating risk management policies and enforcing risk management policies.
As with all other board activities, risk management plans should be forward-looking. Risk management committees should take note of what they’ve learned from past risks and prior losses. In addition, they should stay in the loop of media stories about risks that other nonprofits have faced and how their boards dealt with the crises.
Just as nonprofit boards benefit from diversity in their membership, risk management committees also benefit by having a diverse group on the committee. Risk management committees operate best when they have committee members with dissimilar backgrounds and world views. This is one reason it’s better to have a risk management committee rather than just one risk manager.
It’s helpful to have people on the committee from the board, management and possibly a few volunteers. Don’t be afraid to get the word out. More people are usually interested in serving on a risk management committee than you might think. Most importantly, a risk management committee needs an effective committee facilitator.
Duties of Nonprofit Risk Management Committees
Risk management committees should include at least one person who has some level of expertise in managing risks and can help to lead the committee in making responsible and informed decisions. The committee may also consult with one or more third parties to assist them with their work.
Risk management committees are usually charged with duties such as identifying risks, assessing and prioritizing risks, determining how to manage risks and coming up with a risk response plan. These are the important steps that will help them develop a risk-tolerance profile. The committee should document goals and their achievements as well.
The chair of the risk management committee should be in communication with the managers to learn more about current risks and how management is handling them. Together, they can come up with an overall risk management strategy.
One of the most important things that a risk management committee can do is to create a culture of risk management throughout the organization. Their work may include identifying who within the organization needs training and who has already had it. Creating a culture of risk management incorporates communication from the top leaders to the day-to-day volunteers about why risk management is important, how the organization is addressing it, and what risk awareness can do for the organization.
Board Management Software Is the Number-One Tool for Risk Management Committees
Board management software provides a highly secure online platform where board members, management and committee members can work as a team. With board management software, there is no reason to worry about non-secure communications or file-sharing, as it is all highly protected.
One of the most important features of a board management software program is the ability to set user permissions granularly. This valuable feature keeps out hackers and prevents unauthorized users from getting confidential information.
Risk management committee members may spend many hours away from the committee doing research. BoardEffect’s platform is easily accessible by electronic devices, which is a huge convenience for committee members. Another valuable feature of BoardEffect’s system is that it gives committee members the ability to update documents in real time so that all committee members have the most up-to-date, useful information.
As risk management committees go about their work, they can ask the succession planning committee to recruit board members who have risk management expertise if they feel like they’re lacking in this regard.
Taking strong steps toward risk management sends a clear message to regulators, lawmakers and stakeholders that the nonprofit is taking its responsibility for risk management seriously.