Managing Nonprofit Risks as Donations Drop

Nonprofit organizations have always had to make do with tight budgets. Recently, for many organizations, the situation is becoming worse as donations drop and costs rise. As budgets tighten, organizations need new strategies to manage their nonprofit risks so they can stay focused on the mission.

Donation Levels Have Plummeted

Many nonprofit organizations have seen a significant drop in donations. Axios says charitable giving has reached a three-decade low. The problem isn’t just that Americans are cash-strapped, either. According to a Giving USA report, Americans only donated 1.7% of their disposable income in 2022, which is the lowest percentage since 1995. When adjusted for inflation, donations to educational organizations dropped by 10.7%, donations to organizations that provide human services dropped by 8%, and organizations that focus on the environment or animals dropped by 8.9%.

Axios also says that food banks have seen a drop in donations even as rising food costs have led to increased demand. Data from the USDA shows that 44 million people were living in food insecure households in 2022, representing a 31% increase.

Even blood donations are down. According to a Forbes article published in January 2024, the American Red Cross was experiencing its lowest level of blood donations in two decades, possibly due to respiratory illnesses, winter weather and more people working from home.

The Impact on Risk Management

Declines in donations and funding can have significant and far-reaching implications for risk management. Here are some of the ways nonprofit organizations may be facing increased exposures:

• Nonprofits are having to make do with fewer workers. When budgets are tight, organizations may not be able to hire as many workers. To make matters worse, a survey from the National Council of Nonprofits shows that many nonprofits are experiencing worker shortages and difficulty hiring the workers needed to meet demand. During worker shortages, existing workers may be stretched thin, resulting in heavier workloads and increasing the risk of mistakes. Security can also be an issue if workers are more likely to be alone.
• Nonprofits have fewer resources. Faced with funding issues, organizations may not have the funds needed to invest in training and risk management. For example, this could mean cutting back on maintenance and property upgrades that could prevent damage.
• Nonprofits have less cushion. If something goes wrong, nonprofit organizations may lack the reserve funds needed to deal with the situation. For example, a nonprofit that needs to pay for unexpected vehicle repairs may not have sufficient funds set aside. This could put funds reserved for services in jeopardy.
• Nonprofits may be tempted to cut back on insurance coverage. Insurance costs have been rising, largely due to the impact of inflation as well as losses stemming from litigation and natural disasters. Faced with rising insurance costs and tight budgets, some nonprofit organizations may decide to reduce coverage. In the event of a loss, such as damage from a severe storm or a lawsuit, nonprofit organizations may not have the coverage needed to recover.

Surviving This Challenging Time

This is a challenging time for the nonprofit sector. To make it through this difficult time while continuing to provide services essential to the nonprofit’s mission, nonprofit leaders may need to adopt new strategies.

• Consider new approaches to funding. Donations have dropped, but funding may still be available. Nonprofits could focus on applying for grants, or they could revamp their fundraising initiatives. According to CNBC, a greater percentage of donations now comes from the ultra-wealthy – this is something nonprofits may want to consider when deciding whom to target with donation requests.
• Focus on risk management. Although it may be tempting to put off maintenance and property upgrades or cut back on training to save money, this could lead to greater costs down the road. When budgets are tight and reserve funds are thin, it’s especially important to prioritize risk management. Cybersecurity, vehicle safety and regulatory compliance are all top concerns right now.
• Work with a broker who understands the nonprofit sector. The right insurance coverage can protect nonprofit organizations so they can continue to work toward their missions. A broker who understands your sector and needs can help you find insurance that’s appropriate for your exposures without costing more than is necessary.

Heffernan Insurance Brokers provides mission-minded nonprofit insurance. To help you manage your risks and stay focused on your goals, we offer exclusive products and services that you won’t be able to find elsewhere. Learn more.