Nonprofit organizations face many of the same risks as their for-profit counterparts. However, tight budget constraints can make any effort to avoid exposures complex. Additionally, challenges within the nonprofit sector, including economic uncertainty, labor shortages and heightened cybersecurity risks, could impact fundraising and operational costs. Nonprofit leaders must closely monitor these exposures and adjust their risk management practices accordingly.
Economic Concerns & Potential Recession Fears
The pandemic saw many nonprofit organizations, especially in the health and human services sector, experience an influx in demand for services. While many groups saw a surge in federal funding and private donations during this time, this financial support has tapered off in response to recession concerns and high inflation.
As many experts continue to predict a recession within the next 12 months, organizations should prepare now to adapt to alterations in consumer behaviors, higher expenses, labor market fluctuations and elevated reputational risks. During economic slowdowns, nonprofit organizations often experience a falloff of private contributions from individuals, corporations and foundation donors as well as reduced government funding and decreased endowments.
Significant reductions in donations as reported by the Chronicle of Philanthropy may indicate financial difficulties for nonprofit organizations should a recession materialize. The report found donor numbers fell 7% during the first half of 2022 in comparison to the same period in 2021. Individual contributions of $100 or less dropped over 17%. As donor loss compounds each quarter, economic uncertainty is a significant concern for these organizations.
Nonprofit organizations must initiate innovative solutions and effective risk management to ensure survival. Leaders should diversify their funding resources, align with partners across the sector to maximize potential donors and develop a marketing strategy to effectively reach niche targets.
Shortages in the Labor Market
Employing more than 12 million workers, the nonprofit sector is comprised of the third-largest U.S. workforce. Employment did experience a fallout of 1.6 million during the pandemic and lowered even further during the Great Resignation. A constrained labor market and a shrinking worker pool have left many nonprofits understaffed. These organizations can struggle to provide competitive salary and benefits packages and lose employees and candidates. A recent U.S. Census Bureau and AmeriCorps survey found volunteerism below pre-pandemic levels, dropping 7% between 2019 and 2021.
Nonprofits that experience inadequate staffing may lead to service delays or a complete loss and cause the communities they serve to suffer. A recent National Council of Nonprofits survey discovered that 26% of nonprofit organizations are experiencing waitlists of over a month and 21% cannot support new clients. Inadequate staffing can also influence financial instability, damage to reputations, data breaches, insufficiently trained staff and board member liability concerns.
Many nonprofit organizations have enhanced compensation, improved benefits, promoted workspace flexibility and adjusted workplace advancement opportunities. Additionally, nonprofits have increased their diversity efforts to make a positive impact on employee and client relationships as well as attract and retain top talent.
Nonprofit insurance coverage that includes general liability, commercial property and business income coverages can help organizations protect people and assets while they fulfill their missions.
Heightened Cybersecurity Risks
Nonprofit organizations are at severe risk for cybersecurity exposures as many lack the funds to implement adequate cybersecurity protocols. Additionally, the highly valuable data of their clients, donors and employees are extremely valuable to cybercriminals.
Many nonprofit operations make them vulnerable to cyberattacks. For example, technology has made donation acceptance more accessible; it also opens the opportunity for cybercriminals to steal, especially with unsecured websites. Technology has also improved communications, but bad links, file downloads and malicious PDFs can create a cybersecurity incident with devastating consequences. Additionally, while most volunteers have good intentions, cybercriminals can slip through quick onboard processes and leave organizations vulnerable to a cyberattack.
Investments into robust cybersecurity measures and recovery from data breaches are more difficult for nonprofit organizations as their operational budgets are limited. Fortunately, many cyberattacks can be thwarted with lockdowns to digital donation systems, security measures for email communications and background checks on all staff and volunteers.
We’re Here to Help Nonprofit Organizations Face Trending Challenges
The nonprofit sector is not immune to trending impacts across the nation. Fortunately, monitoring these developments and taking mitigatory steps to your associated exposures can help you effectively position your organization for long-term growth and operational success. For additional insights into trending exposures in the not-for-profit sector and risk prevention measures, connect with a member of our team.