Three Key Risk Areas for Social Service Agencies

One of the biggest mistakes a social service agency can make is failing to properly invest in its finance department. The natural tendency is to funnel resources into programs that forward your organization’s mission, without placing enough emphasis on the proper infrastructure to sustain those programs. The consequences of such priorities are many, from late financial reporting to an elevated risk of fraud.

Staffing is just one of three key risk areas that is prevalent in many social service agencies, but there are actions you can take to manage this risk.

Finance department staffing

Turnover at the CFO and controller positions is rampant, mainly because mission-driven nonprofits often believe they cannot afford to pay enough to keep good financial talent. Paying slightly above market for a qualified candidate can be an appropriate investment in your organization’s future success.

A staff that has the proper training and experience can help ensure:

• Accurate and timely reconciliation of account transactions and balances. Little good has ever come from having bank reconciliations prepared six months after the fact.
• Accurate and timely financial reporting. Management and the board cannot make crucial decisions, such as program evaluation, employee retention, and infrastructure investment, without interim financial statements that are concise, timely, and reflective of your current financial position.
• Meaningful budgets and forecasts. Your organization needs a finance team that can produce historical financial data and look to the organization’s future.

If you find that your finance department is behind in its work, it may be time for an evaluation of your staff, including the number of workers and their training. If any gaps are found, research the hiring of an outsourced accounting firm to help get you caught up.

Disaster recovery and business continuation

Recent disasters such as Hurricanes Irene and Sandy are reminders of how quickly your organization could lose its ability to access facilities and address the needs of your clients. You can’t control Mother Nature, but you can take preemptive steps to address business interruption.

• Put a disaster recovery plan in place and update it regularly.
• Secure adequate offsite backups for your network and all associated systems. Data stored at a board member or employee’s residence does not count.
• Consider a cloud-based backup system as an alternative to local data storage.
• Test backups and recovery plans frequently and regularly.
• Schedule an annual meeting with your insurance carrier to discuss:
  • Changes in your workforce, programs, or locations 
  • Whether reliance on social media is creating risks to network security and privacy
  • How coverage works if you can’t perform services or access your building
  • Whether you have adequate coverage. According to a Crystal & Co. survey, nonprofits are spending about 0.25 percent of revenues on business insurance. The ideal benchmark is approximately 1 percent of revenues, which means many organizations are getting just the bare minimum coverage.

Succession planning

There has been significant turnover of leadership in social service agencies over the last five years, as a substantial number of Baby Boomers are near or have reached retirement age. Long tenured (and even founding) executives with years of institutional knowledge are departing the workforce.

Although organizations appear to be spending more time on succession issues, especially through strategic planning exercises, there is still inadequate emphasis on leadership transition. This is especially true of smaller agencies with limited resources and a thin internal talent pool. In addition, there is a decreasing pool of experienced nonprofit leaders in the marketplace.

Here are some tips for making a leadership transition as uneventful as possible:

• Do not wait too long. Although a long-time executive could have the best intentions for the agency, the direction and mission of the organization may have passed him or her by. Conversations with an executive about his or her transition should begin as far out as five years before retirement, even if you have not lined up a successor.
• Develop tomorrow’s leaders. Having a succession plan in place is one thing, but the process should be more about developing and nurturing internal staff to take the reins. There may be a case for bringing in a replacement from the outside, but an internal candidate who has been groomed for the role is usually a better solution.
• Lean on your board. Boards should have a vested interest in identifying internal and external candidates. Working with your current executive will lead to a smoother and less stressful transition.

An agency that gives ongoing attention to executive succession planning is often the one that demonstrates flexibility, accepts change, and has the skills to meet ongoing challenges.

A dedicated risk manager

Identifying and prioritizing risks is not easy. It is always a good exercise for management (with the endorsement of the board) to conduct an annual risk assessment to determine the true hot buttons at that time. You should also consider creating a dedicated business risk manager position. According to the Crystal & Co. survey, only 36 percent of organizations evaluated their risks over the last year, and only 22 percent had some type of dedicated risk manager.