Summit: Vigilance best defense for nonprofits

TAKING ADVICE: The summit, held at Crowne Plaza Providence-Warwick, drew more than 160 representatives of nonprofits and companies in insurance, accounting and other sectors that work regularly with nonprofits.
TAKING ADVICE: The summit, held at Crowne Plaza Providence-Warwick, drew more than 160 representatives of nonprofits and companies in insurance, accounting and other sectors that work regularly with nonprofits.

A fully engaged board of directors that stays vigilant even if its nonprofit is never sued is one of several strategies for managing risk outlined Dec. 11 at the PBN Summit on Nonprofit Best Practices.
More than 160 representatives of nonprofits and companies in the accounting, legal and insurance sectors who work regularly with nonprofits attended the summit at the Crowne Plaza Providence-Warwick. Adler Pollock & Sheehan and Providence Business News sponsored the forum.
“Cognitive dissonance” results, according to panelist Andrew Spacone, legal counsel for Adler Pollock & Sheehan, when nonprofit board members and staff believe that because they “do good” in fulfilling their mission and haven’t been sued, they never will be.
“You’re not immune,” he warned. “Thinking you’re immune leads to passivity in doing something about it.”
Later on, Spacone elaborated, saying strong corporate governance is as important for nonprofits as it is to for-profit institutions.
“The board is the absolute first line of defense,” he said. “If the board is doing its job, this by definition will drive out a lot of risk. But some risk will always remain.”
That’s exactly the type of awareness Ruth Feder said she appreciated hearing after the event. Feder attended in her capacity as president of Cove Homes Inc., a nonprofit based in East Greenwich that works to develop affordable housing. The role of president is roughly equivalent to a chairperson of the board of directors, she said.
While her executive director is top notch, continual review of policies and procedures makes a lot of sense, she said.
“I found very helpful the suggestion and information related to boards of directors and taking a look at risks,” Feder said. “Probably everything is in place, but as a board it’s our responsibility to know what’s there. This just broadens my awareness.” In addition to Spacone, the panel included his company’s managing partner, Robert Brooks; Jill Pfitzenmayer, vice president of the Initiative for Nonprofit Excellence with the Rhode Island Foundation and Michael Houlden, regional vice president of the Global Claims Relationship Group with AIG in Boston.
In identifying the need for a forum like this one, PBN editor and summit facilitator Mark S. Murphy said the 6,823 nonprofits registered in Rhode Island represent more than 10 percent of all businesses. Half of those are public charities, he said. They employ more than 18 percent of the state’s labor force, and 64 percent have annual budgets of less than $100,000, Murphy said.
Murphy posed questions to the panelists about common risks that include misappropriation of funds and cyber-breaches, insurance protection, collaboration and consolidation, and endowments.
Having a strong, fully engaged board of directors that recognizes the task of risk management is vital is critical in a world where, according to the Chronicle of Philanthropy, nonprofits lose 13 percent of their donations through misappropriations of funds, Spacone said. That percentage is likely even higher due to undetected and underreported incidences, he added.
The culture of nonprofits often leads to misappropriation of funds, advised Spacone, so boards can’t be too careful.
“It’s not only a legal matter,” he said. “You live and die by your reputation. Misappropriation [of funds] is not going to sit well with your donor base.”
He suggested first recognizing the potential exists, instituting internal controls and periodic audits, paying attention to who manages the books, thorough reporting to the board of directors and, “as a last resort,” insurance.
“Remember this: misappropriation of funds is extremely difficult to detect and that’s the perfect reason to pay attention,” he said. Houlden said adding data and information security and cyberprotections are critical, including apps such as Cyber Edge, since threats don’t come just from the Internet but through email and other means. A single, nonencrypted email that exposed personal patient information cost a nonprofit $250,000 in legal expenses, he said.
Pfitzenmayer noted that a board must “ask the tough questions” in managing restricted and unrestricted funds, for instance.
Nonprofit boards that take professional development seriously, conduct annual performance reviews and create approaches for succession planning not only of staff but of board members, including term limits, will function in a healthier way than boards that don’t do these things, she said.
Another strategy Houlden pointed out included making sure the nonprofit has insurance adequate to cover risks it may be exposed to, which is not as expensive as being caught without the right coverage should trouble arise. Spacone suggested regularly reviewing gaps and deficiencies and taking prudent, cost-effective measures to reduce risk. Being willing to fail but learn quickly from that failure is also important, added Pfitzenmayer.
Panelists addressed questions from the audience at the end of the two-hour session, including an inquiry from Brendan McNally, associate director of business, entrepreneurship and organizations at Brown University, concerning how to manage the liability of volunteers doing frontline work for soup kitchens or painting and construction.
Brown can be held liable if a volunteer is hurt and does damage in some way, noted Spacone, so a key step is to have volunteers sign liability waivers and releases. It is also important to make sure volunteers are competent to do the work they sign up for and to properly supervise them, he said. Finally, he noted, review insurance policies to know what coverage you have. •

No posts to display