Chazin & Company – A Quick Guide to Nonprofit Risk Management + Expert Tips

April 30, 2025

Chazin & Company – A Quick Guide to Nonprofit Risk Management + Expert Tips

From fluctuations in fundraising revenue to recent wage base changes, there are many uncertainties surrounding nonprofit finances and operations. While your organization likely has measures in place to adhere to the strict regulations placed on tax-exempt organizations, you must also prepare for unexpected circumstances.

The process of identifying and addressing potential threats to your organization’s operations is called nonprofit risk management. Only 37% of organizations have a comprehensive process in place to mitigate risks, which means a majority of nonprofits are ill-prepared to address certain challenges that may arise. If your organization is part of the majority, it’s time to create a risk management plan.

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What is Nonprofit Risk?

Nonprofit risk is the potential your organization faces for liability, damages, or loss that could negatively impact your operations and mission. There are common types that affect most organizations across the nonprofit sector, including but not limited to:

• Cybersecurity issues: Data breaches, which could expose sensitive information collected and stored in your nonprofit’s databases
• Staffing challenges: Staff turnover (especially due to conflict between staff members), inadequate training or resources, and other issues facing your team’s daily operations
• Fraud or theft: Situations in which internal or external parties seek to take resources from your organization or its supporters
• Non-compliance: Mistakes or decisions that threaten your 501(c)(3) status, such as failure to file Form 990 for three consecutive years
• Program-related risks: Additional risks that arise from the programs you run, such as a child breaking their arm at your nonprofit’s summer camp

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How To Identify Nonprofit Risk

There are two primary ways your organization can assess its risk levels and identify issues that need to be addressed:

• Self-evaluation: You can tackle risk management on your own using free resources online to guide your risk assessment tasks. Although cost-effective, this approach may not be thorough or efficient.
• Third-party evaluation: You can hire a professional accounting firm offering relevant services. For instance, you could work with a nonprofit CFO who provides strategic advisory services. These professionals can assess potential risks to your financial health and develop strategies to mitigate challenges. 

Involve your leadership, even if you hire a professional. A professional will ensure that your plan doesn’t omit any critical details, but your leadership has fiduciary responsibility and must decide whether or not to implement the expert’s guidance.

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3 Nonprofit Risk Management Tips

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1. Implement Internal Controls

Standardized policies and procedures that help your nonprofit avoid risk in its day-to-day operations are a great first step to preventing major risks from occurring in the first place. As Chazin’s nonprofit accounting guide explains, strong internal controls help safeguard your financial data against errors, fraud, and mismanagement.

A few internal controls to consider implementing include:

• Segregation of duties: Assign different team members to each aspect of significant tasks, especially for financial transactions.
• Access control: Limit access to sensitive data so that only authorized team members can view or use it.
• Regular audits: Conduct periodic checks on your nonprofit’s financial activities through both internal and external audits.

These policies may need adjustment over time, so it’s important to review them regularly. For example, if your access control policy is too restrictive, you may update it to grant access to the right parties while still protecting data from unnecessary sharing.

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2. Establish a Recovery Plan

A recovery plan outlines the steps your nonprofit will take to recover in the event of a risk becoming a reality. For example, in the case of 501(c)(3) status revocation, you’ll need to file the correct forms to reapply. Knowing ahead of time which forms to file and how to submit them will help your nonprofit respond promptly in the event that you receive a status revocation letter.

Here are a few recovery plan considerations for the most common types of nonprofit risk:

• Cybersecurity issues: As NPOInfo explains, nonprofits should have a data training process in place to ensure team members know how to use data effectively—and safely.
• Staffing challenges: Know the consequences of staffing risks, such as hiring expenses or the cost of unemployment in your state. When your nonprofit encounters staffing challenges, you’ll be well-prepared to cover any relevant costs.
• Fraud or theft: Depending on the situation, your nonprofit may need to conduct an investigation of fraud or theft. You should be prepared to notify key stakeholders and adjust internal control policies as needed.
• Non-compliance: Familiarize your team with the requirements for correcting compliance issues, such as incorrect tax filings or financial management practices.
• Program-related risks: Recovery plans will vary depending on the type of programs you run.

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3. Work With a Professional Accountant

For more advice on how to approach nonprofit risk management, consult your accounting firm. Their expertise in nonprofit finances can influence many of the safeguards you have in place to protect against financial risks, and they may also have experience with similar organizations’ challenges. 

Specifically, nonprofit accountants can handle:

• Developing compliant processes
• Recording transactions
• Monthly financial close
• Creating financial statements
• Audit preparation
• Budget assistance
• Grant tracking and reporting

If your nonprofit isn’t already working with an accounting firm, look for a firm with experience in the nonprofit sector instead of for-profit accounting. A nonprofit accountant understands the unique financial standards placed on your organization, helping you not only maintain compliance but also optimize your financial activities to better fund your mission-centric work. 

Your nonprofit can never be prepared for every risk it faces, but there are plenty of steps you can take to mitigate risk as much as possible. Whether your organization needs to invest in insurance, revisit its compliance efforts, or consult a financial expert, risk management is always more effective when approached proactively. Don’t wait for an emergency to arise—develop a risk management plan today.