The Board’s Role in Risk Management

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by the Nonprofit Risk Management Center

The boards of nonprofit organizations have several responsibilities. Of the nation’s 1.5 million nonprofit organizations, a large number continue to rely on volunteers exclusively. In a small organization, the members of the board often establish and carry out policy. As a nonprofit organization grows and matures, the board often hires staff to implement its policy directives.

While the boards of nonprofit organizations delegate appropriately the daily management responsibilities to paid and other volunteer staff, truly effective and healthy boards retain ultimate responsibility for those functions and activities that are related directly to the nonprofit organization’s accountability. A board’s role in risk management reflects its commitment to the proper and successful operation of the nonprofit organization.

Start with Policy

The board’s responsibility for protecting people, preserving assets, and conserving resources begins logically with establishing a risk management policy.

Take It from the Top Down

A nonprofit board not only establishes policies that govern operations, it models behavior for the organization’s paid and volunteer staff, clients and other constituencies.

Control Your Destiny

The board can appoint a Risk Management (or Safety) Committee, which works well in all-volunteer, small and midsize nonprofits. The board approves the overall risk management policy and reviews an annual risk management report from the committee.

Preserve Financial Resources

Financial mismanagement is a critical risk facing community-serving organizations. Thus, one of the most important functions of a nonprofit board is the proper oversight of the organization’s finances.

Be Careful What You Wish For

The board retains overall responsibility for fundraising policy, while it delegates day-to-day fund-raising activities to the staff.

Be Compassionate but Cautious

The nonprofit board plays a critical role in establishing appropriate employment policies and ensuring that the organization follows its policies.

Walk Your Talk

Nonprofit boards must answer to various constituencies, including members, donors, regulatory agencies, service recipients, community at large, employees, and contractual third parties.

It’s All About Money

Prevention activities are very important and may be quite effective, but no nonprofit can eliminate risk altogether. Every board needs to focus some attention on risk financing: management of the sources and uses of funds needed to recover from a potential loss.

Accountability Begins at Home

A nonprofit board has specific legal duties of care, loyalty and obedience. To help the directors commit to being effective members, you can provide a manual with the basic documents and information on the organization’s history, structure and activities; a board orientation program to help bring new board members up-to-date quickly; and board minutes to document the board’s actions.

Everybody Needs Somebody

Frequently, start-up nonprofit organizations rely heavily on individual board members with legal, accounting, and insurance expertise to help get the organization off the ground. An accountable, responsible nonprofit organization moves away from relying on insiders for professional advice as soon as possible.