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msi - managing riskBy Mark O’Connor, Cutcher & Neale, Accountants, Newcastle.

For Leadership teams, July is about closing the year off, assessing performance against goals and starting on the path for the next years strategic plan. Boards meet to discuss the year gone and plans for the next year and beyond.

Many NFP service providers are facing changes to the funding model and the related cash flows for services they provide. Others are addressing changes to how the services are delivered to clients and this stretches across disability, aged care and training sectors.

The annual business planning or strategic review session will likely address:

  • What was achieved against last year’s plan
  • What changes are expected in the coming year(s)
  • What strategies are in place to address these changes
  • What opportunities exist that are not addressed by the existing strategy
  • Where are the gaps and what new strategies are being considered

A risk assessment process is fundamental to resetting an Organisation’s Strategy.

In respect of the changes faced by your organisation, most focus is usually placed on the needs of your clients and how these are best met. This consideration is likely broadened into your client’s desires for new services, followed by how services are delivered to your clients.

You will then think internally to address your workforce, your infrastructure and all of this under the umbrella of addressing changes in the sector you operate in such as funding, regulation, reforms and quality control.

Many organisations have been addressing a change in service delivery and increasing demands to be more flexible in meeting client desires for innovative and flexible service models. In particular disability and aged care services are being refocused to represent client focused and individualised services.

Changes in how services are being delivered to your clients will impact on your risk assessments and also your policies and procedures that underpin business operations. New funding models also create business risk that will need to be addressed in regards to cashflow management and investment strategies.

If you are about to undertake your annual review of how you performed against your business plan, or a strategic planning session to refresh your 3 year plan, now is a good opportunity to reconsider your operational risks and whether the current governance framework appropriately addresses those risks.

Coming from a financial reporting perspective, we have worked backwards to identify operational risks that are common to NFP service providers:

Operational Risks or opportunities
Management of growth into new territories and integration of services
Effectiveness of contract negotiations with governments and service providers
Reliance on third party providers
Increased government outsourcing of services and contestable funding tender
Shift in block funding streams and fee for service activities
Opening existing services to tender
Introduction of National Disability Insurance Scheme and Living Longer, Living Better
Forced amalgamation, resource sharing or collaboration with competitors
Labour force changes – re-skilling, up-skilling, casualisation
Liquidity risk – reliance on Govt Funding Contracts
Fraud – internal and external
Proper Award interpretation and HR Management Processes
Maintenance of accreditation requirements

From our experience in working with NFP service providers, we have also identified key business processes and internal controls that are most effective in managing these risks.

So as a starting point, make some time with your executive team, or at your next Board meeting to discuss these operational risks.

  • Are these risks present in your organisation?
  • Does your organisation have strategies in place to make the most of opportunities from sector reforms?
  • Do your business policies support your desire for a culture of strong governance?
  • Are your business systems and controls effective but also efficient?

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