The Role of Risk Management in Nonprofit Operations

August 22, 2025

The Role of Risk Management in Nonprofit Operations

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Running a nonprofit is a rewarding endeavor, but it also comes with a lot of uncertainty. Unexpected challenges can arise in many areas of your organization, particularly operational aspects like staffing, finance, and technology. Plus, the ever-changing nature of the nonprofit sector and the various impacts of external legal and economic conditions create prime opportunities for risky situations.

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Left unchecked, these risks can disrupt your nonprofit’s work and erode your community’s trust. And while a risk management plan is essential for addressing difficult situations if and when they occur, effective risk management also involves empowering your team to anticipate issues and minimize potential harm as early as possible.

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In this guide, we’ll outline some strategies your nonprofit can adopt to manage common risks and safeguard its operations, no matter its size or mission. But first, let’s look at how risk management works specifically for nonprofits.

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Risk Management in a Nonprofit Context

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Risk management is the process of identifying, evaluating, and mitigating potential threats to your organization. For nonprofits, this primarily involves safeguarding your various mission, funding, and compliance obligations so you can continue making a difference in your community (i.e., taking a cause-driven approach rather than a profit-driven approach like a business would in its risk management work).

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Especially when considering operations, the most common types of nonprofit risk include:

• Cybersecurity breaches that expose sensitive data on your organization, its supporters, or its beneficiaries.
• Fraud, whether it’s an internal financial issue (which can happen intentionally or unintentionally) or fraud by impersonation (where an external scammer uses your nonprofit’s branding and tax ID to collect “donations” online and pockets the money).
• Theft of money or property, often by someone close to your organization who gains access to resources or responsibilities that they shouldn’t have.
• Noncompliance with the nonprofit-specific requirements set forth by federal and state governments and other regulatory bodies (for example, if your organization misses its Form 990 filing deadline, it can incur fines from the IRS and even lose its tax-exempt status after repeatedly failing to file that federal return).

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Some of these risks will affect your specific nonprofit more than others. For instance, you might be able to complete your tax returns on time every year because you work with a very dedicated accountant, but if you’ve never had an IT professional review your data security practices, cybersecurity might be a bigger threat to your operations. To begin creating your risk management plan, conduct a risk assessment to determine the likelihood and consequences of various risks to your organization so you can prioritize addressing the most impactful ones.

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Proactive Operational Risk Management Tips

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Reactive risk management strategies (like crisis communication procedures) are probably what first comes to mind when you think of risk management, and they have their place in your organization’s plan. However, you also need to work proactively by weaving risk management into your everyday operations. Here are a few tips for doing just that!

Implement Data Security Precautions

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As we touched on before, implementing strong precautionary measures for data security is the best way to prevent information breaches before they occur. Double the Donation’s donor data guide recommends taking the following steps to start:

• Restricting data access to individuals who need it to do their jobs and setting up a unique login with a strong password for each of those team members.
• Using reliable software that comes with built-in security features like encryption and two-factor authentication.
• Running regular system updates so your platforms are always outfitted with the latest security patches.

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Train your team to navigate these precautions, and to spot and report other common cybersecurity issues like phishing and ransomware attacks, so everyone is on the same page about protecting your nonprofit’s data.

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Update Your Policy Handbook

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All of your nonprofit’s policies and procedures should be compiled in a shared handbook so your employees can easily reference them as they go about their daily tasks and thereby manage risks proactively. In this handbook, you need to outline policies for:

• Gift acceptance so team members can ensure they don’t accept prohibited financial or in-kind contributions and provide reasoning for any rejections to donors.
• Conflict of interest management to identify and handle potential issues where leaders’ or board members’ personal and professional interests may impact their duty to your nonprofit before you have to resort to crisis management.
• Expense reimbursement so paying staff members back for spending their personal money on behalf of your organization doesn’t become a vehicle for fraud.
• Investment—not only to protect your nonprofit’s investments from theft, but also to ensure they’re working in your best interest.
• Employee compensation to demonstrate that you’re complying with laws surrounding pay transparency, overtime, unemployment insurance, and other relevant issues (along with compensating team members fairly, of course).

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If this resource doesn’t exist at your organization, your first step in proactive operational risk management is to create a handbook. If it does, review the handbook and ensure these policies are up-to-date and take any special considerations that apply to your nonprofit (unique types of donations you receive or investments you manage, employees who work across different states, etc.) into account.

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Ensure Adequate Staffing

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When your nonprofit is understaffed, employees can quickly become too busy to check in with each other, allowing potential threats to slip through the cracks. But while full staffing is essential for your organization to minimize risk, it can be challenging with a limited budget.

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One solution is to outsource some specialized duties to third-party professionals who can not only take these tasks off your team’s plate but also use their expertise to complete them accurately and thoroughly—at a lower cost than hiring in-house. Some nonprofit roles and responsibilities that lend themselves to outsourcing include:

• Technology: Security review, database auditing, system troubleshooting
• Marketing: Website development, graphic design, ad campaign management
• Human Resources: Compliance checks, compensation strategy development, workplace culture assessment
• Finance: Bookkeeping, accounting, fractional CFO services

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No matter what positions you choose to outsource, Jitasa recommends choosing professionals who have experience working with nonprofits so they’ll be familiar with how your organization operates and better understand your needs and goals (and the risks that could get in the way).

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By understanding nonprofit risk and proactively managing it using the tips above, you’ll build a solid foundation for your organization’s operations that will help you weather any unexpected circumstances that come your way. Just make sure every employee understands their role in everyday risk management, since it takes a team to protect against threats and maintain community trust in your nonprofit.