Getting Expert Advice to Reduce Nonprofit Risk

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by the Nonprofit Risk Management Center

Nonprofit organizations attract bright, dedicated and capable people as staff members and service volunteers. Despite the tremendous talent often resident in a nonprofit, every organization needs outside help from time to time. Help may be required to conduct an unbiased review of a funding or program opportunity facing the organization, facilitate a strategic planning session, offer insights into investment opportunities, or counsel the organization about legal risks or insurance matters.

Like the human beings who lead them, nonprofits have a lifecycle. The lifecycle begins with infancy—the time when mission shines bright, resources are scant and the bulk of the work is done by volunteers. As funding is secured to support programs and services, the organization reaches the stage of adolescence. It is doing a lot of things right at this phase but still has lots to learn. Leaders of nonprofits in this stage may be heard saying, “We’ve been successful thus far, but there are still a lot of loose ends and issues we need to address.” By the time the organization reaches maturity, its culture, mission, reputation and perhaps resource base are solid.

During the infancy phase many nonprofits rely exclusively on insiders for advice and assistance. Many newly formed nonprofits turn to volunteer board members for help with insurance matters, legal issues and financial concerns. As an organization matures it should begin to look outside the boardroom for expert help. Doing so is not only good risk management practice but very good for the health of the organization. While an insider brings passion about the mission, that passion may make it impossible for an expert in his field to offer the kind of frank advice the organization needs.

Every nonprofit should identify at least one lawyer licensed in the state where the nonprofit operates or has its headquarters who can offer legal help and advice on matters likely to come before the organization. For example, a nonprofit that engages in partnerships with other nonprofits, private businesses and government agencies should local an attorney with contracting expertise who can guide the organization through these partnerships. A nonprofit that has a large, growing staff is likely to need the advice of an employment expert from time to time. An organization that intends to establish one or more for-profit subsidiaries may require help from a tax attorney with deep nonprofit experience.

As organizations mature they strive to move from purely functional accounting and financial management systems to systems that support decision-making, wise investing and sound financial planning. In many cases a nonprofit’s first bookkeeper or finance manager will not have the skills and experience to appropriately advise the staff, finance committee and board regarding increasingly complex financial issues. Hiring staff with greater expertise is an important step, but seeking independent financial help enables the nonprofit to obtain truly expert insights at the fraction of the cost of hiring a veteran CFO. Even when the organization has a well-rounded finance department, an organization may still seek independent advice about investments, anti-fraud measures and financial planning. A growing number of smaller nonprofits are turning to firms that provide outsourced accounting services. One of the benefits of using such a firm is that a small organization can enjoy access to a team of accounting and finance professionals at less than the cost of a junior accountant serving in a staff position.

It’s not unusual to find an insurance professional on a nonprofit board roster. During infancy many nonprofits recruit someone knowledgeable about insurance with the expectation that this individual will help the nonprofit obtain appropriate coverage. Insurance professionals bring valuable business, marketing and financial experience to the board room and may play a key role in helping the board understand the role of insurance. However, a nonprofit should never rely on a board member as its sole insurance advisor. An independent insurance agent or broker should be identified to help the organization evaluate its exposures and insurance options. At a minimum, an organization’s agent or broker should have experience working with other nonprofits and access to several insurance companies that specialize in nonprofits. In an ideal world, a nonprofit’s insurance advisor will have experience serving similar nonprofits.

How to Find Help

Let’s assume you agree that your nonprofit needs independent expert help. Begin your search by asking trusted colleagues in your community who they turn to for expert help in the areas discussed in the proceeding section. Continue by asking your board for ideas about possible advisors. A well-connected board may be able to identify and help recruit experts willing to provide pro bono or discounted assistance on an as-needed basis. MCN also maintains an online business director of consultants, accountants, and professionals. Another resource is an association of management consultants, such as the Alliance for Nonprofit Management, whose members include nonprofit management support organizations (MSOs), as well as independent consultants, research institutes and academic centers. Before designating someone an advisor to your nonprofit, make certain they have the background you require in an expert and that they are willing to take the time required to learn about your organization. Speak candidly about your expectations with regard to response time, workload and what you can afford.

While internal expertise will always serve your organization well, remember that seeking help from independent sources can be an effective way to sustain the health of your nonprofit. Getting outside help is a sign of your commitment to protecting the mission, reputation and future of your organization.