Financial Contingency Plans (Managing Risk During Difficult Economic Times)

1. Financial Contingency Plans(Managing Risk During Difficult Economic Times) YWCA Southwest/Delta Region Regional Conference January 31, 2009 Presented By Cheryl Black, TANO c 3 Accountant Texas Association of Nonprofit Organizations (TANO)

2. Introduction • Introduction • Class Survey • Plan for the session • Participation • Questions • Breaks • Review agenda

3. 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

4. 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

5. 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

6. 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

7. 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?

8. 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

9. 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

10. 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”

11. Implement • Technical • Those who have technical expertise in that area • Managerial • Those who have the authority to: • Engage multiple departments • Cross-organizational coordination

12. 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

13. 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

14. Current YWCA Financial Contingency Plan “The Local Association has a contingency plan for maintaining solvency during financially challenging times.”

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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?

21. 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

22. 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

23. 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

24. 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

25. 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

26. Wrap Up • Q&A • Next Steps

27. Financial Contingency Plans(Managing Risk During Difficult Economic Times) YWCA Southwest/Delta Region Regional Conference January 31, 2009 Presented By Cheryl Black, TANO c 3 Accountant Texas Association of Nonprofit Organizations (TANO)