Managing Operational Financial Risk for Non-Profits
Directors of volunteer organizations must take care to give appropriate oversight to reduce the risk of financial loss while allowing officers to execute their duties with minimal interference.
When considering financial risk, we can focus primarily on the core operational risks of Fraud, People, Legal, and Model or Process. All boards should review the following areas to insure that they are adequately supporting their officers and protecting their donors.
Review the process for new officers with special attention toward:
Are passwords being rotated so past officers no longer have access? Are they suitably complex?
What is the minimum membership duration to become an officer or a signatory?
Are banking signatories being updated as officers are elected?
Review treasury management processes with special attention toward:
Is it possible to separate operating and reserves accounts? It would be appropriate to have between three and six months of cash to support operations in the operating account, then clear the remainder to the reserves account monthly or quarterly.
Are all accounts under the current FDIC limits? Does it make sense to divide accounts or take advantage brokerage accounts to qualify for SIPC insurance as well?
Are multiple signatures or approvals required to move funds from the reserves to the operating account?
Are debit or credit cards going to be permitted? On operating account only?
How could you limit the number of individuals, vendors, partners that have the routing and account numbers for the reserves account? Could that number be zero?
What risks can be insured? Theft, fraud, cybersecurity?
Are there opportunities to pool risk through regional or global partners?
Review oversight procedures with special attention toward:
How are bank reconciliations being handled?
Who compares the financials issued to the board with the bank account balances?
What other oversight responsibility do board members have over the treasurer?
Answering these questions will reduce the risk of the organization being defrauded and insure the board has met its fiduciary responsibility for this particular type of risk.