Take time to hope for the best but prepare for the worst: Top risks facing nonprofits in 2021

NOVEMBER 19 / Leslie Tamagi


September 2021 Update: IntegralOrg has developed trainings for nonprofits. Embracing Risk: Building Blocks of Risk Management provides your nonprofit with the building blocks for a comprehensive and effective risk management plan, customized for your organization and its unique risk profile.  Upcoming training: October 13 and 27, 9am-12pm. Details and Registration. Our Risk Management Toolkit  including quizzes to assess your organization's capacity to manage risk plus a customized risk management dashboard will launch in October 2021.

As the pandemic wears on without imminent relief, the risks that all nonprofits are facing are continuing to shift. Unfortunately, we can’t afford to wait until things calm down, we need to expend resources preparing for these emerging risks now. I’m no doomsayer, but robust discussions with your Board and staff on the top risks and the questions posed below will be a worthwhile investment in your future.

Cyber Threats: As many agencies have shifted parts of their business online and are working remotely, cyber risks are ramping up and cybersecurity matters more than ever. Our reliance on technology has increased substantially and therefore so do the risks and potential impacts of a breach.

Some experts are saying the next big pandemic is going to be virtual. According to Pipikaite and Davis, a cyberattack could deprive an organization and staff from access to their devices, data, or the internet - any of which could be devastating. In a worst-case scenario, broad-based cyberattacks could cause widespread infrastructure failures that take entire communities or cities offline. 

When I was a CEO of a nonprofit organization, our agency experienced a fire in our server and we lost all online access to our information. It was only for only a day, but it seemed much longer. One saving factor was that I had a hard copy of contact information for our staff and volunteers and a list of critical information such as our insurance broker’s phone number. This small act of advanced preparation saved me hours. Imagine not having access to your computer, phone, or internet for several days: what do you need to do to prepare for this scenario? Is your agency ready to pivot quickly in the event of a major technology disruption?  Do you have alternate systems in place?

Culture/Human Resources: As the pandemic drags on, it is increasingly taking its toll on our workforce; reduced number of staff available to work, higher absenteeism, rising work demands, and mounting mental health issues. While front-line health care workers and teachers are widely recognized for the additional stresses they are facing in performing their day to day jobs, our front-line staff, many of whom work with vulnerable people, face similar conditions. What additional steps can your organization take to support your essential workforce? How would you adjust your services with a significantly reduced workforce?

COVID-19 Related Financial Losses and Risks: While the short-term funding made available by various levels of government has provided much-needed support, the long-term funding forecast, combined with the current economic realities, are grim. According to the Alberta Nonprofit Network’s latest sector survey undertaken in October, 2020, a majority of nonprofits have seen a decrease in revenues with earned income, individual, and corporate donations showing the most significant decreases.  At the same time, demands for services are increasing while the capacity of organizations to deliver services has, for many organizations, declined. This is not a situation that we can just fundraise our way out of, especially given the significant drop in fundraising revenues.

The welcomed short-term government funding programs have created some unique risks for organizations. For example, how do you ensure you spend the money received within the timelines allowed, especially when you may have been fortunate to access multiple funding sources? Are you confident that your agency has a sustainable business model? Are you considering options now for the next 6-12 months when government funding support ends, leaving a significant gap? If you have been able to scale-up in this crisis, have you given thought to a scaling-down plan? Do you need to be thinking about mergers, collaborations or even winding up your agency with dignity? And how can funders support agencies in making these tough decisions?

Changing Insurance Market: Anyone who has gone through an insurance renewal recently likely experienced an increase in the information requested, a longer timeframe needed to complete the renewal, rising costs, and increased exclusions. The financial stability of your organization impacts your ability to obtain appropriate coverage. Insurance coverage is also growing increasingly complex, for example, there are multiple types of coverage for cyber security. You don’t want to assume you have coverage in the event of a data breach only to find out your coverage is for ransom threats. Do you fully understand the endorsements and exclusions of your insurance? Does your broker understand your agency and know your story?

The Ontario government introduced legislation to provide liability protection for nonprofits and charities relating to exposure to COVID-19 provided they make an honest effort to follow public health guidelines. With no similar legislation imminent in Alberta, the potential liability to agencies should someone contact COVID-19 through their organization should be discussed with your broker. Regardless, insurance can’t be seen as the solution, and a focus on risk strategies such as OHS compliance, training for staff, providing proper protection equipment, and documentation of COVID-19 protocols are essential components of your risk management plan.  

Mission Drift and Relevancy: The ingenuity and innovation demonstrated by agencies during the pandemic has been impressive; many organizations have been able to quickly pivot and adapt their services to changing needs. Some organizations are ramping up significantly, hiring multiple staff and branching out, while others are struggling to survive. As a sector, we will always do what has to be done, but we also need to be cognizant about offering services outside of our mandate beyond the initial response timeframe. While in crisis mode, we tend to spend more time on operational risks, but the bigger risks are the strategic risks. This pandemic provides us with an opportunity to evaluate all of our activities, and focus on those that have the biggest impact, making sometimes difficult decisions to let programs and supports go. Are your services still relevant? How have the needs of your clients changed, and what have/can you do to address these? What are the risks associated with your strategies? What are you missing in our strategies? Are the assumptions behind your strategies still true? In the spirit of innovation and being responsive, have you drifted so far from your original objects that your charitable status may be at risk?

Reputation and Increased Scrutiny of our Sector: We have yet to experience the wide-scale fallout from the WE scandal, but it will come. According to the latest CanTrust Index released on September 8, 2020 by Proof Strategies, Canadians' trust in charities and the nonprofit sector has fallen 6% to 50% overall, after climbing by 7% in May. Alberta rates the lowest province in Canada with just 37% having trust in charities. "When the pandemic first hit, we saw a spike in trust in charities as they mounted a response to help people in need,” says Bruce MacLellan, President & CEO of Proof Inc. “Now, only four months later that spike is gone and the main charitable narrative in that time has been the ongoing WE story in Ottawa.”

With everything we do now blasted across social media, the risk to our reputations grows. We rely heavily on positive public perception and the generosity of others. Our reputation, once damaged, is very difficult to recover. How can your organization instill your values and use them in guiding everyday decisions at all levels of your organization? How can you enhance trust in your agency? How can we, as a sector, improve the public’s understanding of the sector and increase transparency and accountability? 

These are tough questions, but ones worth spending time on. Let’s keep the conversation going. We welcome your thoughts on these top risks – do they resonate with you? Are there others we need to include? With funding from The Calgary Foundation, IntegralOrg will be supporting nonprofits in the development of effective and sustainable risk management systems through creating a suite of tools, resources, and training programs. Our goal is to help organizations of all sizes understand and engage in risk management in an accessible, ongoing, and dynamic manner. We want organizations to start thinking critically and proactively about risk; we will provide the resources and support you’ll need to integrate risk management into your decision-making and planning processes.  We hope you will join in the conversation – follow us on social media, subscribe to our newsletter and stay tuned for more information on upcoming training, resources, and tools.  

Why Cybersecurity Matters More Than Ever During the Coronavirus Pandemic, Algirde Pipikaite and Nicholas David. March 2020. 

Canadian's Trust in Charities has Dropped 6% Since May. The Charity Report.

Leslie Tamagi has more than 25 years experience as CEO of diverse organizations and understands firsthand the complex challenges facing management, staff, and boards in the nonprofit sector. In 2007, she received a Muttart Foundation Fellowship to study risk management in the sector. For more than a decade she has worked with nonprofit organizations, providing training and supporting them through their risk management journeys. She is passionate about supporting leaders to be successful and is currently consults in the nonprofit sector in many aspects of leadership, including risk management.