Financial Contingency Plans(Managing Risk During Difficult Economic Times)

YWCA Southwest/Delta RegionRegional Conference

January 31, 2009

Presented By Cheryl Black, TANO c 3 AccountantTexas Association of Nonprofit Organizations (TANO)

Introduction

Introduction Class Survey Plan for the session

Participation Questions Breaks Review agenda

Agenda

What is risk management? How do nonprofits prepare for a financial

contingency plan? What items should be in your

organizations plan? Wrap up – Q&A

Risk Management

What is Risk Management? A way of preventing losses

Income loss Reputation loss Services provided loss

We manage risk everyday Baby gate at the top of stairs Pets on a leash Expiration dates on food containers Flu shots at beginning of cold weather

Risk Management (continued)

For nonprofits risk management responsibility is distributed to different departments Board of Directors

Strategic planning Budgeting Policy formation

Program Staff orientation In-service training Case Management

Facility Preventive maintenance

Preparing Your Organization for a Financial Contingency Plan

Analyze loss exposures Examine which risk management techniques

work best for your organization Select one Implement Monitor and Evaluate Change the culture of your organization

Analyze Loss Exposures

Determine potential hazards or causes of loss One area affected may ripple across the entire

organization Calculate the financial consequences Prioritize levels of impact (high, medium, low)

Needed to accomplish exempt purpose? Maintain revenue stream(s)? Ensure ongoing operations?

Examine Which Risk Management Techniques Work Best

Avoidance Don’t engage in particular activity

Control by – Loss prevention – reduce frequency of loss Loss reduction – reduce severity of loss Segregation –

Separation – internal controls Duplication – backups, cross training

Examples – on-call staff, redundancy in IT systems

Examine Which Risk Management Techniques Work Best (continued)

Retention Accept the risk and pay for it Expense within the annual budget Dip into reserves Borrow

Transfer both legal and financial responsibility Insurance

Select One

Be candid and transparent Express divergent views and follow them

through to understanding “Through the process we achieved a much

better understanding of our critical functions”

Implement

Technical Those who have technical expertise in that area

Managerial Those who have the authority to:

Engage multiple departments Cross-organizational coordination

Monitor and Evaluate

Regular review (weekly, monthly, annually) Detail people – generate data to correctly analyze

risks Big picture people – use intuitive sense of when

decisions are right or wrong

Change your Organizational Culture

Establish objectives, strategies, roles and responsibilities

Decisions now will have consequences far later

What’s your organizational tolerance level?

Balance drive for mission fulfillment vs. need to operate with accountability

Current YWCA Financial Contingency Plan

“The Local Association has a contingency plan for maintaining

solvency during financially challenging times.”

Items to Consider for YourFinancial Contingency Plan

Insurance Directors & Officers (D&O) Insurance -

(Board acting as the governing body) Errors and Omissions -

(Staff working with HR and payroll)

Protect your data Computer and electronic data processing File cabinets

Items to Consider for YourFinancial Contingency Plan (continued)

Cash and Investments Cash deposit risk

FDIC insured Several different banks

Investment risk Investment policy established Investment spending policy in place

Items to Consider for YourFinancial Contingency Plan (continued)

Cash Flow considerations – Perform cash flow projections on a regular

basis (weekly, monthly) How many months of expenses can be

covered by current cash? Negotiate payables

Items to Consider for YourFinancial Contingency Plan (continued)

Evaluate your current strategic plan Is your strategic plan responsive to current

economic conditions? Will changes to the current year’s plan affect

your long term goals?

Budget conservatively Assume cash will arrive late Assume bills need to be paid sooner

Items to Consider for YourFinancial Contingency Plan (continued)

Revenue – review and optimize Dependent on one source?

Consider way to diversify Don’t over diversify (start up costs, fixed assets)

Review revenue changes Investment losses Government funding

Reimbursement rate could increase/decline Foundations – multi-year grants Individuals

Individual giving historically has not declined much during recessions

Items to Consider for YourFinancial Contingency Plan (continued)

Programs – review and optimize Establish priorities What’s fundable? Are deficit programs important to the

mission? What is the cost of each additional client

served?

Items to Consider for YourFinancial Contingency Plan (continued)

Maintain visibility Avoid “fake it ‘til we make it” Develop donor relationships

Donors don’t disappear, but become more cautious and compare

Can turn into endowment gifts (to sustain your organization the next time)

PR $$’s vs. advertising $$’s Avoid “interrupt” methods (telemarketing, direct

mail) Pursue “permission” based methods (search

engine optimization, blogging) Maintain web presence

Items to Consider for YourFinancial Contingency Plan (continued)

Maintain visibility (continued)

Remind stakeholders of the mission Offer knowledge and information

(earn and retain trust – not sales hype) What’s the competition doing?

If they are cutting marketing dollars, increase yours

Items to Consider for YourFinancial Contingency Plan (continued)

Focus on the “big picture” – protecting your end users “The goal of surviving a recession is not to stay

afloat for the sake of staying in business, but rather to make sure you’re around to keep serving the public, particularly in times of increased demand for services” Clara Miller, Nonprofit Financial Fund

How are you going to respond to higher demand for services?

“Live to fight another day” Work to build public policy underlying the causes

your exist to address

Items to Consider for YourFinancial Contingency Plan (continued)

Downsizing plan Furloughs Across the board salary reductions Outsourcing to consultants Partnering or merging with similar

organizations Share back office tasks

Some foundations are willing to invest in paying for shared services

References

Risk Management for Nonprofit Organizations by Kathryn M. Vanden Berk

Winter 2003, Alliance for Children and Families Magazine Public Relations, Investor Relations, Marketing Professionals: Do More with Less in

Tough Economic Times

http:www.guidestar.org/news/features/nmarketing_in_tough.jsp?source=jan09nwsltr Nonprofit Risk Management Center

http://www.nonprofitrisk.org How We Built Our Contingency Plan, by Charles R. Willis

Communications News, April, 1991 Tips for NPO’s Threatened by the Financial Crisis

PhilanTopic, September 22, 2008 Inside Philanthropy (a blog of Philanthropy Journal)

Nonprofits must gear for tough economy – September 29, 2008 Tough times create opportunity for nonprofits – August 11, 2008 Nonprofits can partner on back-office tasks – July 21, 2008

Navigating the Financial Crisis: A Nonprofit FAQ

www.nonprofitfinancefund.org

Wrap Up

Q&A

Next Steps

Financial Contingency Plans(Managing Risk During Difficult Economic Times)

YWCA Southwest/Delta RegionRegional Conference

January 31, 2009

Presented By Cheryl Black, TANO c 3 AccountantTexas Association of Nonprofit Organizations (TANO)