Understanding Governance, Risk and Compliance in the Nonprofit Realm
Nonprofit boards should get acquainted with the acronym GRC at their earliest opportunity. GRC is commonly known as governance, risk and compliance. Corporations, large and small, rely on these principles to ensure that they’re operating their businesses ethically and legally. Governance, risk and compliance are separate components to running a business, but they’re strongly interconnected with each other. GRC helps organizations and corporations to achieve their objectives while keeping risks in check to protect their shareholders and stakeholders.
Many complexities are inherent with nonprofit organizations and board portals are quickly becoming a necessity to manage all of the duties efficiently and diligently.
Understanding Governance in the Nonprofit Realm
The definition of governance covers a lot of territory, which makes it difficult to narrow down a succinct definition. The Institute on Governance attempts to define governance as a situation that exists any time that a group of people comes together to accomplish an end. Most definitions include three facets of governance principles: authority, decision-making and accountability.
Governance speaks to who has power, who makes decisions and how people make their voices heard. Governance also incorporates how a body of people structure accountability.
Stakeholders play a very important role in governance. Their stakes in the organization cause them to demand high degrees of performance and transparency.
To complicate matters a bit more, the economic volatility of the times is forcing regulations to be in a continuous state of evolution. While nonprofit organizations follow different laws and rules than for-profit corporations, they are affected by the instability of the corporate marketplace in an ancillary way. As a result, the fluctuation in the regulatory market provides nonprofit boards with unpredictable and uncertain challenges.
Understanding Risk Management in the Nonprofit Realm
Understanding risk management is one of the primary duties of being a nonprofit board director. Technology is creating increased opportunities. Along with opportunities come increased risks. The complexity of risk in today’s corporate world is causing nonprofits to come together on what constitutes best practices for nonprofits to manage risks responsibly. Incidences of financial problems caused by lack of board diligence have led to nonprofit organizational failings and eye-catching headlines.
A 2013 investigative report in The Washington Post stated that over 1,000 major nonprofit organizations in the United States had a significant diversion of assets as a result of internal wrongdoing, as noted in their federal filings. For example, in 2014, the Federation Employment and Guidance Service, a major social service agency in New York, closed its doors due to internal financial mismanagement. Goodwill Industries of Toronto provides another example of a nonprofit organization that declared bankruptcy due to internal financial issues. The debacle caused the resignation of the CEO and the entire board of directors. In 2016, the Wounded Warrior project came under fire for lavish spending by the CEO and COO. Wounded Warriors attempted to appease donors by firing both of them.
Besides internal fraud, nonprofit organizations are just as culpable for data breaches as for-profit corporations. Nonprofit organizations are often more vulnerable than for-profit corporations because they don’t often have the capital or financial assets to adequately protect their organization and its stakeholders as public or private corporations.
Regardless of their size or financial status, nonprofit boards must be cognizant of the newly created emphasis on risk management in the nonprofit realm. Regardless of their development cycle or financial resources, nonprofit boards have a duty to commit to a specific routine of gathering, evaluating and responding to threats and opportunities.
In the early stages of nonprofit development, boards may have no choice but to rely on insurance policies to protect the organization. Board portal software management systems such as BoardEffect can also be a valuable resource for boards to fulfil their duties related to governance, risk and compliance at an affordable cost, even in the early stages.
During the growth stage of a nonprofit’s development cycle, boards place less focus on work and greater focus on governance. At this juncture, they need to spend more time on strategic planning and other areas of governance.
Growing nonprofits need to be diligent about performing their audits so that they can attract and retain a strong donor base. This is the stage where boards must gain a better understanding of threats. Nonprofit boards can demonstrate risk management by being transparent with their finances and having long-term plans for sustainability. Insurance is usually not enough on its own to fulfill these duties. Board management software systems strongly assist nonprofit boards in risk management.
Understanding Compliance in the Nonprofit Realm
The “C” part of GRC refers to compliance, which means that nonprofit boards must follow all federal, state and local laws. These laws protect stakeholders from unscrupulous nonprofit agencies that fall prey to abusing the financial tax advantages that accompany nonprofit entities.
Nonprofit organizations are exempt from federal and state taxes and have unique access to certain types of public funding. For these reasons, nonprofits must hold themselves accountable to the highest standards.
Nonprofit organizations face various risks if they choose not to comply with federal, state or local laws, even when their actions are unintentional. Nonprofit boards must file the appropriate forms with the IRS annually and, in all matters, act with honesty and integrity. The IRS can levy heavy penalties for nonprofit organizations that fail to follow through with their obligations. The IRS also has the authority to revoke the nonprofit’s status for severe offenses. In addition, states can administratively dissolve nonprofits for not being compliant with laws and they can also impose high penalties according to state laws. Perhaps more importantly, the government can prevent noncompliant nonprofit organizations from receiving donations and grants.
Many nonprofit organizations maintain a checklist of obligations to make sure they stay compliant with the laws. This is another reason that board portals are a good idea for nonprofit organizations of all sizes and in all stages. Board portals can automate the process of remaining in compliance.
For example, nonprofit organizations need to keep accurate and complete records and follow procedures to keep records updated. Board portals take care of these duties efficiently and afford boards the ability to produce updated documents quickly.
BoardEffect’s portal offers unlimited, cloud-based storage for donation reports, expenses, grant information, revenues, expenses, bank statements, canceled checks, IRS documents, tax filings and founding documents.
Board Portals Provide Efficiency and Diligence in GRC
Board portals provide a way for boards to commit to governance, risk management and compliance so that it’s done right. Board portals have the added benefits of reducing risks, reducing costs, assuring compliance and enhancing transparency. These are all important issues that support a nonprofit board’s efforts toward GRC.
