9 Nonprofit Business Threats That Keep Executives Up At Night

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Last week I had the pleasure of holding a non profit alliance meeting with the leadership team of 8 non profits. Ranging in size from a budget of $20,000,000 up to more than $240,000,000, it was amazing how similar their operations were at the core.

Carrying out their mission was the number one goal for all of them. But given these crazy times, things are not like they used to be. Cost cutting, the need for efficiencies and plain hard work is something they are all dealing with.

The meeting was facilitated by me along with Matt McCrosson, partner of O’Connor, Davies, Munns and Dobbins, LLC. Also present was Dan Alcott, Partner with Dorf Law Firm, LLC. The purpose of the meeting was an open forum and sharing of best practices in several different areas. Matt, Dan and I supported the discussions with our perspective on best practices we see for all of our clients. The agenda included specific items having to do with Financial, Legal and Risk Management areas.

As part of the meeting we asked all the attendees what was one thing that kept them up at night. Many were repeated by several members. I have listed them below with some additional comments.

  • Lack of a current strategic plan – The group agreed that any plan that was more then a year old does not reflect the current state of affairs they are operating in.
  • Concern that revenue is not enough to cover expenses – Donations are down, interest income is down and endowment income is down. At the same time the need for mission is on an increase. There is a lot of pressure to cut expenses, which sometimes translates to staffing cuts and elimination of programs. Since the goal of nearly all non profits is mission driven, there is an in balance between the financial needs and being able to keep the mission going.
  • Compliance issues - Just when you think you understand the issues and are compliant, things change. Some specific issues of concern voiced are new 990, GAP, NYPMIFA and HR related issues.
  • Complexity of contracts – Some organizations were better aligned here than others. But they all agree this is a huge area of concern. They do not want to assume too much liability and want to try and transfer as much as they can. The larger non profits have in house general council who spends a large portion of their time reviewing and signing off on all contracts. They include employment, purchasing, independent contractors and joint venture agreements. We have seen so many times loose contracts controls resulting in negative financial results for non profits.
  • Volunteer risk management – Everyone agreed that this is a critical area and needs attention. Many of these organizations use thousands of volunteers every year. Controls range from every volunteer signing a wavier to no waivers at all. It was agreed that waivers do perform a level of protection and should be the normal practice. Training, orientation, soliciting feedback and screening should all be in place.
  • IT Strategies – There was a lot of discussion about aligning the IT strategies with those of the organization. Sometimes the IT department is not kept up to date with the mission efforts and therefore they don’t provide the right kind of support and system design to match the business (mission) goals.
  • Network security. It is clear that no matter how diligent you are, you are always behind the hackers. The IT departments are concerned about keeping up to date with equipment upgrades, evaluation of new software products and the risks associated with data breach and security issues.
  • Financial reporting software – This was discussed extensively among the participants and is a very critical area for everyone. There is a huge direct and indirect cost to maintaining the systems and staying up to date.
  • Fraud – There was a lot of discussion about white color crime. Several of the participants have had occasion to determine that this was going on. Two of the 8 participants both prosecute to the fullest extent of the law. Making sure that you have the proper checks and balances in place is important as well.

Many of these topics are worthy of more information going forward and I plan on doing that.

I would be happy to hold another one of these meeting for local non profits. I will tell you it was very helpful to everyone who attended. In fact we are scheduling a follow meeting with this same group in the early part of 2011.

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