Like any organization, nonprofits face a variety of threats. Loss of nonprofit status, litigation and fraud can all be enough to seriously disrupt the work of any nonprofit, or even force the organization to shut down.
Proactive measures can help nonprofits protect themselves from these potential threats so staff can focus on the organization’s mission.
These steps will help any nonprofit organization protect itself in 2022.
1. Start With a Risk Assessment
Each nonprofit is unique and faces a different set of potential risks and challenges. A risk assessment helps you identify which risks your organization faces — and which are the most important or likely to cause trouble.
Different strategies for risk assessment exist, but your staff should always investigate a few common risk areas:
- Cybersecurity in e-commerce, donations processing and other types of transaction handling,
- Storing and accessing “personally identifying information” on volunteers, staff and donors,
- Fraud and scams,
- Financial risks,
- Organizational reputation
Knowing the potential risks your organization faces will help you develop plans for responding to them.
2. Have Emergency Plans
Emergency preparedness will help you protect your organization, its staff and its volunteers safe during an emergency — like a natural disaster, fire or extreme weather.
Typically, nonprofit organizations have a person or team in charge of emergency planning. Before an emergency, this group will plan evacuation routes, stock emergency supplies and identify important paper records that may need to be protected.
During an emergency, this group will help execute emergency plans, guiding staff and volunteers to safe locations and establishing the whereabouts of individuals.
First aid kits, staff CPR training and other emergency investments can also help your nonprofit team respond effectively to an emergency.
3. Keep On Top of Paperwork
Each year, nonprofit organizations need to file paperwork with both federal and state governments. The most important of these forms is the Return of Organization Exempt from Income Tax, also known as a Form 990, which serves as an annual information return for the IRS.
Each state also has its own rules and regulations about what nonprofits must do to maintain state-level tax-exempt status.
Often, this involves additional paperwork and information returns with state agencies. Did you change your articles of incorporation or bylaws during the year? Then you’ll also need to report the change in accordance with state laws.
4. Know How to Detect and Prevent Fraud
Like any organization, nonprofits can fall victim to fraud and embezzlement.
Being familiar with the red flags of fraud will help you detect and prevent fraudulent activity. For example, you may notice unfamiliar vendors in financial records, documentation that’s been tampered with or unusual transactions. Investigating when you spot one of these signs will help you to catch potentially fraudulent activity.
Insurance can also help protect you and your officers against allegations of fraud. This is one of the main reasons why nonprofits invest in directors and officers (D&O) insurance. It covers the cost of defending directors in the event of a lawsuit.
5. Keep Your Nonprofit Insured
Insurance helps provide for your nonprofit when things go wrong. If your nonprofit sells products or offers them to donors, for example, product liability insurance will help protect your nonprofit in the event of a lawsuit from a customer who claims they were hurt by a product your organization provided. Like D&O coverage, it helps to provide for some of the major costs that can come with litigation.
Some insurance is also necessary for your organization to function — car insurance, for example, is a must if you want your organization to have some kind of vehicle fleet.
An insurance agent or broker should be able to work with your nonprofit to determine the coverage you need. Talking with an agent about these types of nonprofit insurance will help you get covered for the situations your organization may face.
6. Protect Your Reputation Online
Damage to a nonprofit’s reputation can be just as harmful as the loss of tax-exempt status or fraud. When donors and volunteers lose faith in an organization, it can quickly lose the resources it needs to fulfill its mission.
Reputation management can sometimes be essential for nonprofits, especially larger organizations or those that face significant public scrutiny.
Your organization should be prepared to respond to negative press and complaints. You should have a team dedicated to public communications or a point-person who will handle communications on behalf of the organization.
Proactive reputation management can also help. Many nonprofits publish press releases on the completion of a major project or after a significant win for the organization. These press releases can help spread the word about your organization’s accomplishments.
On social media, you can use your platforms to update followers on your current projects and discuss the progress you’ve made this year.
7. Know How to Protect Your Nonprofit Status
A 501(c)(3) nonprofit’s tax-exempt status can be one of the organization’s most important assets.
A nonprofit’s tax-exempt status is fragile, however. If your organization doesn’t comply with the rules and regulations that nonprofits must follow, it can easily lose this status — making fundraising, partnerships and accounting much more difficult.
For example, nonprofits that generate excess profit must re-invest it through a service or spend the funds by creating a reserve or endowment. Your organization can’t use this extra income to reward an individual. Otherwise, your tax-exempt status may be at risk.
Failing to file the correct paperwork every year can also threaten your tax-exempt status.
If you receive notice from the IRS about a violation, it’s important you respond quickly. Ideally, you can work with your accountant or a nonprofit consultant to respond in a way that allows you to keep your tax-exempt status.
How Nonprofits Can Be Ready for Anything
Like 2021, 2022 could be another chaotic year. These tips will help any nonprofit organization prepare itself for future challenges — like emergencies, fraud and damage to the organization’s reputation.
It’s important to stay on top of paperwork and insurance. Failing to do so could put a nonprofit’s tax-exempt status at risk or reduce the protection the organization has in the event of fraud or litigation.
About The Author
Eleanor Hecks is the Editor-in-Chief of Designerly Magazine, an online publication dedicated to providing in-depth content from the design and marketing industries. When she's not designing or writing code, you can find her re-reading the Harry Potter series, burning calories at a local Zumba class, or hanging out with her dogs, Bear and Lucy.