Risk management for
The treasurer is responsible
for ensuring that the
organisation is protected
against financial risks.
A risk is any event or action that harms
your organisation's reputation or your
ability to achieve your objectives and carry
out your operations.
The risk of anything going wrong is
usually small, but it can have disastrous
consequences. If you do have a financial
crisis, face facts immediately, be honest,
and keep the information flowing.
Your people are your greatest strength -
and your weakest link. The risks include:
- Lack of financial skills. People often
volunteer or work for not-for-profit
organisations because they feel
strongly about the organisation's
mission and want to be of service. They
may not have strong financial skills.
You can overcome this weakness by
having clear processes and procedures
for all financial transactions and
training staff and volunteers to follow
- Introducing too much change too
quickly. Some treasurers come in with
a new broom approach and want to
make major changes. While often these
changes will be for the better, you need
to remember that volunteers and staff
who have been with the organisation
for many years may resent these
changes. Consulting with staff and
providing training will go a long way.
- The power of thank you. It is
important to recognise the contribution
that staff, volunteers and members
make to your organisation. Sometimes
a 'thank you' phone call or letter is all it
takes. Occasional social gatherings also
- Theft and fraud. While theft and fraud
only happens occasionally, there are
plenty of cautionary tales about
employees or volunteers who've stolen
money or taken the laptop when they've
left. If you suspect fraud, notify your
chairperson and board, contact a
lawyer, involve police if necessary,
evaluate and change your procedures,
ask the person to leave your
organisation and consider legal action.
- Conflicts of interest. Conflicts of
interest can occur when people stand
to gain financially or they (or their
families) are involved in an organisation
with competing or contradicting
Consider asking directors to
sign a statement stating they have no
conflicts of interest. Use 'the tabloid
test' - how would the situation look if it
was reported in a tabloid newspaper?
Have a brainstorming session to identify
any potential risks. Questions to ask are:
- What risks would prevent us meeting
our objectives or carrying out our
- What controls could we adopt to
minimise risks to an acceptable level?
- Is your strategy realistic and
- Could a failure in operations prevent
you achieving your objectives?
- Are you losing money or not
maximising your financial returns?
- Are you failing to meet your regulatory
or taxation obligations?
- Are your people failing to perform?
Once you have identified the risks,
analyse and rank them in terms of their
likelihood, potential impact and priority.
Develop strategies and methods to
prevent or minimise risk. Proactive risk
management involves identifying risks
and taking action to prevent or minimise
One way of managing your risks is
through internal systems and checks and
balances. For example, ideally no financial
transaction should be handled by the
same person from beginning to the end.
You need to decide who can authorise
spending, and how much each person can
spend before they need to have the
spending agreed to by their manager or
the committee. This information must be
recorded in your procedures manual and
included in training programs.
Even if people have spending limits, it is
common practice and common sense to
have all cheques counter-signed by one
or two office bearers. Often one of these
people will be the treasurer.
This can be inconvenient, but it is
important to have someone responsible
for monitoring expenditure to keep a
watchful eye on cash flow and prevent any
opportunity for fraudulent behaviour.
Some organisations allow any two out of
three or four people to sign cheques.
While this is a practical and flexible
arrangement, it does weaken the
- Develop/review your strategy
- Highlight the potential risks
- Research the evidence
- Categorise the risk
- Score and prioritise the risks
- Devise a risk management strategy
- Agree on a plan of action
- Communicate about the risk
- Monitor and evaluate the risk
- Review policies and procedures
Source: National Council of Volunteer
Your bank may ask for a list of office
bearers who have signing authority and
request that they fill out a form for
security purposes so their signature can
be checked against future cheques.
Remember to advise the bank when your
office bearers change.
Your financial recording systems should
ensure that all expenditure is accurately
recorded and directly linked to an item in
Your organisation needs a minimum level
of reserves to fund working capital and
provide a safety net for cash-flow
Many small organisations find it hard to
build reserves, but it is worth doing. You
can ask your funders and supporters for
more money specifically to establish
reserves, or budget to put aside an
amount each year so reserves accumulate
slowly over time.
Certain insurances are mandatory, such
as worker's compensation if you employ
staff, and third party insurance if you have
In addition to mandatory insurances, you
may want to consider:
- Public liability insurance
- Professional indemnity insurance for
- Property insurance if you own
- Contents insurance
Look at what payment options are
available. Can you pay monthly or
quarterly rather than a year in advance?
Could you get a better deal with a
Common causes of failure of community organisations
- Growing programs too fast: A larger organisation can mean that management and
supervision resources are spread too thinly.
- Income erosion: Fewer paying clients, fewer customers, and fewer consultancies can
all lead to revenue being below expectations.
- The big project: Tendering for a large project in an area where your expertise is limited
can expose your organisation to new risks.
- Borrowing: It is possible to borrow money to relieve cash flow problems and then find
that expected income does not eventuate.
- Organisation inertia: An organisation can become so rigid its ability to react to new
demands is too slow for proper functioning.
- Decline in service standards: Unless an organisation can continue to meet the needs
of its clients, customers and stakeholders more efficiently than its competitors it may
find itself sidelined.
- Decline in employee development: Unless the organisation provides its staff with
the opportunity to extend themselves the organisation will stagnate and fall behind.
- Poor cost control: If you are optimistic about your projections of income and
conservative on your forecast of expenses, rather than vice versa, disaster is always near.
- Neglecting appropriate ratios: In financial matters gross figures are not everything
- the rations are also important. What is your assets-to-liabilities ratio? Income-to-debt?
Cost per client? Marginal cost per client?
- Poor cash-flow forecasting: If your debts become due before your revenues come in,
you're in trouble. People will sometimes wait for their money, but don't count on it.
- Insufficient information: If your system of reporting is either too slow or too scrappy,
people will not know what they need to know. As treasurer, it is your responsibility to
amass the necessary information and pass it on to the board.
- Fraud: Fraud in not-for-profit groups does happen - and unfortunately it's not that
uncommon. Without being paranoid, don't leave yourself open. Have two people sign
cheques, and don't give one person total authority over both spending and bookkeeping.
- Decline in membership: If you can't keep your members engaged either by the cause
you're pushing or the fun you provide, they'll go elsewhere. The loss of membership dues
is the least of your worries; you lose volunteer labour until the work falls on fewer and
fewer shoulders, so they resign, and you're into a vicious circle.
- Reliance on a single form of funding: An organisation that has most of its funding
from one source (Government grant, one donor, special event etc) is particularly vulnerable
to decisions taken elsewhere. Unless you have a fallback funding source you could be
taken out completely.