Nonprofit risk management requires awareness of the issues that might affect your organization. In this new series on nonprofit resilience, we ask the popular AI program ChatGPT to help nonprofit leaders identify risks in different functions of a nonprofit. (For more about ChatGPT, read this.)
We begin this series with the finance function — the processes nonprofits use to account for operations, report results, and maintain money. We wanted the AI’s help in identifying common risks in the nonprofit financial function.
The Nonprofit Risk Management Prompt
We seeded ChatGPT with the following prompt about nonprofit risk management:
Acting as a journalist, describe common risks that nonprofits face in their financial function.
ChatGPT’s Answer
As a language model AI, I don’t have personal experiences, but here’s a list of common financial risks that nonprofits face based on my training data:
- Mismanagement of funds: Nonprofits must handle significant amounts of money and resources, and any mismanagement of these funds can result in financial loss, reduced program delivery, or reputational damage.
- Fraud and embezzlement: Nonprofits are vulnerable to fraud and embezzlement, particularly in the absence of strong financial controls and oversight.
- Lack of diversified funding sources: Nonprofits that rely too heavily on a single source of funding are at risk if that source dries up or if the economy takes a downturn.
- Inadequate budgeting and financial planning: Poor budgeting and financial planning can result in the over- or under-spending of funds, putting the organization’s financial stability in jeopardy.
- Uncollected debts: Nonprofits may provide services to clients who are unable to pay, which can result in uncollected debts that negatively impact the organization’s financial position.
- Inadequate insurance coverage: Nonprofits should have adequate insurance coverage in place to protect against financial losses, but they may face risks if they do not have the right policies in place or if they fail to renew them.
- Inadequate internal controls: Weaknesses in internal controls can result in the mismanagement of funds, fraud, and other financial risks.
- Lack of transparency and accountability: Nonprofits must be transparent and accountable in their financial dealings, and any lack of transparency can result in loss of trust from stakeholders and potentially legal or regulatory consequences.
Notes and Questions Based on This Answer
How many of these issues affect your nonprofit?
What other financial function risks should be on your radar? In my new book, Managing Your Nonprofit for Resilience, I provide 57 additional issues you can ask about your finance function as part of your nonprofit risk management.
How might you incorporate AI into your risk management planning to help address some of these risks? You can reach out to me here at Risk Alternatives for suggestions, including resources for getting better results when using AI. Alternatively, you can create a ChatGPT account for yourself to begin exploring how AI could impact your organization.
(By the way, all of the art for this series on common nonprofit risks was generated by Midjourney, another AI program. I asked that program to generate images about financial risks in the style of Vincent Van Gogh.)