The changing landscape of education, the myriad of new government regulations and funding, the uptick in technology usage, the impact of inflation, your sources of funding and corresponding donor restrictions, and the processes you have in place, all impact the viability of your organization. Unfortunately, comprehensive risk assessments, which should happen at the audit committee and management level, are not effectively taking place to identify and asses the potential risks and what the impact to the organization may be.
There is risk in every decision we make, and we have gotten to the point where we can often assess simple risks quickly and effectively so that we are not paralyzed by indecision. We draw upon our life experiences to guide us through situations, and we also rely on our management team and fellow Board/Audit Committee members to consider avenues we may not have thought about … because truthfully, we really don’t know what we don’t know. Having said that, it is also important to think strategically about the organizations that we manage and consider “What can go wrong, and do we have processes in place to identify and correct things if they do go astray?”
Nonprofit Boards have certain fiduciary duties in place, the Duties of Care, Loyalty, and Obedience … these duties also hold true for organizational management. Fulfillment of these duties requires organizational leadership to consider organizational risk:
- Are proper controls in place to safeguard the school’s resources?
- Are proper IT controls in place to prevent cyber theft and are staff receiving proper training?
- Are access controls appropriate to ensure confidentiality of information (e.g. FERPA regulations)?
- Are proper backup and recovery in place?
- Is there an effective system of internal controls in place that blends prevent controls (segregation of duties) and detect controls (compensating controls)?
- Is there adequate insurance coverage and are insurable risks properly considered?
- Are the organization’s assets being deployed in an efficient manner?
- Are expenditures properly being monitored (budget to actual) and periodically readjusted if necessary?
- Are investments prudently managed and are processes properly documented as required by the New York Prudent Management of Institutional Funds Act (NYPMIFA)
- Is staff effectiveness properly being analyzed and reviewed?
- Is the organization maximizing its potential?
- Is the school meeting educational standards?
- Is proper strategic planning in place to provide an appropriate roadmap for the school going forward?
- Are established goals being met and how is their progress being monitored?
- Does the school have an adequate flow of resources to meet budget and future growth plans?
- Are there conflicts at the Board, management, donor, or other levels that may be negatively impacting the organization’s growth or decision making?
- Is the school staying true to its mission and purpose?
- Is the school complying with appropriate laws and regulations?
- Nonprofit Revitalization Act
- NYPMIFA
- Payroll and Employment Laws
- Is someone regularly reviewing employee handbooks, policies, and benefits?
- Donor/Grant restrictions
- Are endowments properly being tracked based upon donor intent or if donor intent is not clear, NYPMIFA?
- Operational regulations (e.g. vaccine policies, etc.)
- Funding source regulations, such as SED, Food Programs, etc.
- What is the school doing to stay on top of changing regulatory changes and who is responsible for this?
This needs to be an ongoing process throughout the year, with assessment and monitoring occurring regularly within your organization. School leadership needs to work with internal and external stakeholders to identify and understand the various risks in place and develop an ongoing plan to continue to understand new risks, mitigate current risks, and monitor that policies and procedures are effectively working. There should be regular time set aside at management and Board/Audit Committee meetings to focus on risk and the actions the school will take.
There is so much that organization leadership needs to understand, and it is extremely difficult to juggle all the responsibilities. We have found that it has been harder for school leadership to think strategically, especially under the COVID pandemic, as the landscape has been changing so dramatically and leaders have had to react quickly to such changes. It is extremely important for leadership to come together (management and Board) to ensure that risks are properly addressed and assessed on an on-ongoing basis so that the education of tomorrow’s leaders can continue.
This article was also featured in our newsletter Report Card Vol. 5
This article was also featured in our newsletter Special Ed-ition Vol. 26
Kenneth R. Cerini, CPA, CFP, FABFA
Managing Partner
Ken is the Managing Partner of Cerini & Associates, LLP and is the executive responsible for the administration of our not-for-profit and educational provider practice groups. In addition to his extensive audit experience, Ken has been directly involved in providing consulting services for nonprofits and educational facilities of all sizes throughout New York State in such areas as cost reporting, financial analysis, Medicaid compliance, government audit representation, rate maximization, board training, budgeting and forecasting, and more.