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Understanding GRC for the Non-Profit Organization

Jun 28, 2022

Governance, risk, and compliance is a hot topic amongst organizations of all sizes. GRC principles are essential in developing sustainable operations in the uncertainty of the future. Each of these is a separate pillar of an organizational structure, but each relies on the other to maintain the integrity of the organization. Governance seeks to maintain strong, responsible, and diligent leadership. Risk management is the identification, preparedness, and mitigation of threatening uncertainties. And compliance ensures that the organization upholds the law and operates with integrity. Each of these helps build the foundation for the organization to move forward in a responsible and sustainable manner.

GRC in non-profit

Non-profit organizations operate under many of the same conditions as their for-profit counterparts. Each of these three pillars is equally, if not more important in the non-profit space, which is not immune to the considerations GRC is meant to address.  Leadership and risk management teams for non-profit organizations need to carefully consider their unique position when looking to make GRC-related improvements. So, what exactly does each of these pillars mean for an organization with such a fundamentally different purpose? Rather, how should one address GRC in non-profit?

Governance casts a wide net, strictly defining it is difficult when considering just how complex an organization can become. Ultimately, governance refers to the authority structure within an organization and the accountability it implies. Governance broadly covers considerations such as how accountability travels up and down the chain of command, and how the organization behaves in relation to its stakeholders, the community, and its professional citizenship. It is important for organizations to demonstrate strong governance practices to instill confidence in the face of challenges, and to lay the groundwork for a resilient organization. Much of the accountability for any potential risk ultimately falls on leadership, and that leadership’s ability to administer its operations. How the governance structure responds to threats and disruptions goes a long way in instilling confidence both internally and externally.

Risk management is the second GRC pillar, and perhaps the most challenging. Non-profits are not immune to financial risks, and like any other organization, must carefully safeguard and manage their assets. As third-party integrations and digital transformation continually evolve and unlock value for many organizations of all types, they also bring new and emerging risks. Modern risk management has a wide range of contingencies to plan for, IT and cybersecurity, supply-chain, data protection, fraud, and anti-corruption, non-profit organizations are exposed to many of the same risks that for-profit organizations face as well. Particularly in the realms of cyber and financial security. Non-profits generally have less capital available, meaning less resources can be dedicated to IT and cybersecurity infrastructure, making non-profits a particularly vulnerable target. Additionally, the privileged financial position non-profits enjoy subsidizing their operations also exposes them to a higher level of scrutiny, as their advantageous position also leaves them vulnerable to corruption and fraud risks and carries with it the added weight of expanded compliance requirements. Any sort of financial mismanagement can be particularly damaging. Non-profits are particularly vulnerable to

Non-profits need to create strong risk management principles and demonstrate those capabilities to maintain their integrity to stakeholders and attract donors. This is an example of how risk management leans on governance for accountability, be that through robust auditing and risk assessments, transparency, or careful strategic planning.

Compliance is perhaps where non-profit organizations face their most unique challenges. As previously mentioned, non-profits enjoy certain financial advantages, most notably state and federal tax exemptions. This help bolsters the efforts of the organizations. Because of these privileges, non-profits are held to high standards when it comes to financial regulation and compliance. These regulations are meant to protect donors, stakeholders, and taxpayers from exploitive activity under the moral guise of a non-profit. As such, organizations are obligated to demonstrate compliance with state and federal financial regulations on a continual basis. Penalties for infractions can be severe, even if they are unintentional. The IRS can subject the organization to heavy penalties for infractions, and even revoke the tax-exempt status, which would cripple many non-profits which rely on these benefits to maintain operations. Such actions can discourage, or even bar new donors, further exacerbating the damage.

Leveraging GRC to Gain Efficiency & Agility

These three pillars intertwine and are critical for the success of any organization. Strong governance relies on robust risk management capabilities to maintain stability as it charts a course into the uncertain future, and good compliance to help maintain its advantageous financial position. Risk management relies on strong governance to avoid compromising positions and provide strong leadership in difficult situations and relies on compliance to ensure regulations are properly understood and accounted for. Regulatory compliance is reliant on risk management to maintain integrity in its operations and relies deeply on leadership for accountability and authority to execute its directives.

Non-profit organizations enjoy advantageous financial privileges such as state and federal tax exemptions and access to public funding. As such, non-profits are held to a high standard by regulatory officials to ensure these privileges are put to good use and not abused. Building a foundation of integrity, risk management, ethics, and compliance is critical to maintaining these advantages. On top of this, non-profits must contend with many of the same risks to their operations as for-profits and still need to generate cash flow, pay employees, manage supply chains, and ultimately deliver value to continue operations long term and achieve their goals.

As a result, there has never been a greater need for compliance automation with an agile technology and information architecture than now. The back-end management and oversight of compliance is crucial to the overall continuity of the organization, and an effective compliance architecture and framework will engage employees and all relevant stakeholders to keep them connected and in tune with compliance – specifically as it regards to their roles and responsibilities within the organization.

It is essential for non-profit organizations to develop an integrated, agile, and collaborative issue reporting and case management program and framework that is found in VComply. VComply’s system and compliance architecture allow for issue reporting and case management to be integrated into other compliance, risk management and assessment activities coordinated across different departments and functions of the organization. This enables the organization to break down silos and make more informed business decisions. 

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