In today’s uncertain times, everyone needs to think about risk. This includes financial fraud or cyber security risks, which I wrote about in my last post. Additionally, economic downturns can increase the demand for services while simultaneously straining donors’ financial capacity. I hope to address this in a future post. In this post, I want to focus on proactive steps organizations can take in case they come under government scrutiny.  Thorough preparation and attention to detail minimize your risks.  I have actionable ideas for both boards and staff. I also addressed some of these issues in a previous post.

Governance and Legal Oversight

• Mission Alignment: Ensure your organization adheres to its charitable mission – especially as outlined in your Articles of Incorporation.
• IRS Compliance: Stay up to date with IRS regulations for tax exempt organizations including timely filing of Form 990 and proper categorization of activities.
• State and Federal Laws: Ensure compliance with all applicable nonprofit laws including state-level charity registration, annual reports, and other reporting requirements.
• Donor Acknowledgements: Provide accurate and timely acknowledgements to all donors.
• Documentation: Maintain good board and committee meeting minutes to document decision-making. Minutes are not transcripts. They should capture decisions without excessive detail that could create liability if reviewed by external parties or a court. They should not attribute statements to individuals by name. Minutes should include:
  • Date and time of meeting
  • Type of meeting (regular, annual, special)
  • Names of directors who did or did not attend, that a quorum was established, names of guests, and whether any attendees left or re-entered
  • Any board actions – approvals, delegations of authority, etc.
  • Whether any directors abstained from voting
• Political Activity: Understand the legal boundaries for 501c3 and 501c4 organizations. Conduct training for board members and staff.

Financial Oversight

• Financial Records: Maintain clear, accurate, current, and well-documented financial records. Ensure board members review financial reports generated directly from accounting software, such as QuickBooks, rather than re-entering data into spreadsheets which increases risk of errors and fraud.
• Budget Management: The Board should approve and monitor the annual budget with reports showing how revenue and expenses align with the budget. This helps prevent mismanagement.
• Audits and Reviews: Organizations large enough should conduct regular external audits. If audits are not feasible, the Treasurer should review bank statements quarterly and financial statements at least quarterly, if not monthly.
• Reserve Fund: Maintain a fund to cover legal or IRS challenges.
• Funding Preparedness: Plan for disruptions in funding especially if you get government grants. Also anticipate declines in funding from risk-averse institutional donors or individual donors facing financial strain. Review your expenses proactively and develop a plan for strategic budget adjustments.

Operational Security and Risk Management

• Cybersecurity: Review cybersecurity measures to protect donor and operational data. (Refer to my previous post for more information.)
  • Staff Training: Train staff in secure communication and record keeping practices.
  • Risk Assessment: Conduct periodic risk assessments to identify operational vulnerabilities and mitigate potential threats.

Crisis Preparedness

• Response Plan: Develop a response plan for audits, investigations, or political scrutiny.
  • Expert Support: Establish relationships with experts (legal, tax attorneys, CPAs) specializing in nonprofit and tax law.
  • Coalition Building: Partner with other nonprofits and advocacy groups to share best practices and provide mutual support.

Public Relations and Messaging

• Media Plan: Have a media plan with designated spokespeople to engage with the press interactions.
  • Social Media Strategy: Use social media strategically, avoiding posts that could be misinterpreted or cause unnecessary controversy.

Board Oversight

• Bylaw Review: Review your bylaws to ensure compliance with state laws and organizational values.
  • Board Policies: Review board policies. Eliminate old, outdated policies. Add new appropriate ones, as necessary. Ensure that all existing policies are followed—having an unenforced policy, such as a document retention and destruction policy, can be more problematic than not having one at all.
  • Conflict of Interest: Require all board members and key managers to sign a Conflict of Interest form yearly and share this information with the board. All board members should also sign a form allowing electronic communications.
  • Leadership Salaries: Document the decision-making process for determining the salaries of your CEO and other key leaders.
  • Training: Train board members on governance, legal obligations, and advocacy risks.