Title: CAIS Trustee/Heads Conference Managing Financial and Operational Risk in Independent Schools
1CAIS Trustee/Heads ConferenceManaging Financial
and Operational Risk in Independent Schools
- January 23, 2010
- Presented by
- Bolton Company Insurance Brokers Ronald
Wanglin, Chairman/CEO, and Cheryl McDowell, Vice
President, Education Practice Group - DKG ConsultingDenise Gutches, Business
Management Consultant
2Session Overview
- Financial Risk Management What Does This Mean
and Who Is Responsible for What? - Board Oversight and Operational Risk Management
- Recommendations for Best Practices
- Current Critical Issues Hot Buttons!
- Resources for Financial Risk Management
3School Risk Management
- Risk brings opportunity as well as potential harm
to an organization. - Managing financial risk means maximizing
opportunities and minimizing harm. - Risk permeates every function within the
organization - Strategic
- Legal/Fiduciary
- Financial
- Operational
- Reputational/Political
4Risk Management
- What is risk management in an Independent School?
- It is a discipline that should be practiced at
all levels and functions. - It is a continual process in the schools
management and methods of operation. - It is proactive, not reactive.
-
5Risk Management and Board Governance
- "There is no way a board can establish
sufficient policies and procedures in order to
eliminate all risk and resulting law suits, but
risk can be managed in order to keep litigation
to a minimum. - The board's role is to assure that the
appropriate policies--such as personnel, student
activities and behavior, crises management, and
financial management--are in place and that the
school is following those policies and the
resulting procedures every day in a consistent,
fair manner - NAIS Trustee Handbook Chapter 2 Keeping the
Mission and Serving as the Fiduciary of the School
6The Boards Work
- Fiduciaryprotecting the school to ensure
achievement of mission - Strategicthinking about strategic and tactical
moves to make the school sustainable - Generativevisionary thinking
Dick ChaitThe New Work of th Board
7Managing Financial Risk
- Strategic Planning/Financial Planning
- Tactical moves in the midst of economic
uncertainty - Re-think the financial model
- Freeze the size of staff and grow the size of
student body - Adopt discipline that wont add new program
without subtracting old program - Marketing
- Ensure the price value proposition is clearmake
your school a necessity for families not a luxury
8Responsibilities forRisk Management
- Board of Trustees
- Head of School
- The Business Officer
- Human Resources
- Other Operational Personnel
- Outside Consultants
9Financial Risk Management and the Boards Role
- Place on the schools strategic agenda.
- Make a commitment to risk management oversight.
- Integrate into all areas of operations.
- Make a part of every decision making process.
- Support the Head of School in efforts to manage
risk. - Make professional expertise available as
appropriate. - It is difficult to figure out the questions you
are not asking, so ask lots of questions and pull
on every thread you can.
10The Boards Role
- Financial Risk Management and the Audit
Committees Role - Determine whether the school has the appropriate
policies and procedures in place to minimize
risk? - Assessment of financial risk and exposure
- Assure adequate funding for staffing, and
facilities maintenance/repairs to minimize risks - Require annual reporting updating risk management
program - Conduct a Risk Management Audit
11Risk Management and the Heads Role
- Promoting risk management throughout the school
community. - Ensuring that risk management is delegated to the
appropriate individuals within the organization. - Monitoring the program and keep the Board
apprised of its implementation.
12Internal Risk Management AuditTEN KEY AREAS
- Board Oversight on Fiduciary Matters
- Operating Policies
- Student Programs and Activities
- Facilities Managementmaintenance, safety,
security - Human Resourcesemployment practices, handbooks,
records management
13Internal Risk Management AuditTEN KEY AREAS
- Legal compliancereport filings, contracts
- Technologyinternal controls, safeguarding data
assets - Admissionsservices, activities and policies
- Fundraisingservices, activities and policies
- Environmentalindoor air quality, noise, lighting
hazardous materials
14The Risk Management Committee
15Risk Management Audit
- Identify potential risks in each area
- Understand degree of risk exposure
- Likelihood of exposure
- Extent of Potential Loss
- Type of exposure that could occur
16Responsibilities of The Risk Management Committee
- Identify and analyze loss exposures
- Examine alternative risk management techniques
- Select Risk Management techniques
- Implement Risk Management techniques
- Monitor results
17Risk Management Insurance
-
- Audit Existing Insurance and Risk Management
Program - Benchmark Existing Coverage and Limits
- Evaluate Assumption of Risk
- Self Insurance
- Deductibles
- Risk Retention Groups
18Risk Management Insurance
- Understand
- insurance policy structure what claims reduce
what limits - incident/claims reporting requirements
- how specific coverage works relative to other
coverages - covered/excluded perils, including catastrophic
19Risk Management Insurance
- Dont shop on price alone know what you are
buying - Dont use multiple insurance brokers use a
broker selection process (RFP/RFQ) - Address Key Person financial exposure
- Be informed of new insurance products that may
cover uninsured exposures
20Risk ManagementIntegrity of School Financial
Affairs
- School stakeholders want the assurance and
confidence that financial affairs are handled
ethically and with integrity - Legislation of the past 5 years highlight the
need to implement the appropriate policies and
procedures to eliminate risk of financial
misstatements
21- Recommendations for Best Practices
22Risk ManagementBest Practices
- Place on the Boards strategic agenda
- Employ long-term thinkingproactive not reactive
- Establish an Audit Committee or Clarify Audit
Committees Role in Risk Management Oversight - Conduct Internal Risk Management Audit and Update
Annually
23Risk ManagementBest Practices
- Implement critical policies and update regularly
- Conduct Insurance Risk Management Audit
- Review and benchmark results on a peer to peer
basis - Review and benchmark employee benefits/retirement
plans
24Policies Schools Should Have
- Annual Audit Policy
- Conflict of Interest
- Whistleblower
- Document Retention/Management
- Banking and Cash Management Policies
- FundraisingGift Acceptance and Gift Management
Policies - Endowment Investment Management and Spending
Policies - Employment Policies and Practices
- Financial Aid and Tuition Assistance Policies
- Facilities Management Policies and Practices
25Current Critical Issues in Risk ManagementHot
Buttons
26Hot Buttons
- Ethics and Risk Management
- Tone at the Topmanagements ethics and integrity
are unimpeachable and tone permeates organization - Conflicts of Interest
- Policies to safeguard against actual and
perceived conflictshow transactions identified
and brought to the Board process to identify
excess benefits. - Contemporaneous discussion and documentation is
critical.
27Hot Buttons
- Regulatory Compliance
- Awareness of breadth and nature of regulations
the school is subject to and protocols for
compliance - IRS990s 403(b) retirement plan changes
- OSHA
- Federal funding
28Hot Buttons
- Financial Misstatements and Risks
- Assessment of risk of material misstatement
- Identification of major risk areas (i.e. debt
covenants) - Management incentive to distort reported results
- Occurs due to ethical tone, control environment
and staff training and capacity - Financial fraud and exposures
- Check forgeries
- Credit card usage
29Hot Buttons
- Fundraising
- Collectability of pledges
- Events yielding budgeted net revenue
- Capital campaigns and impacts on related projects
- Admissions and Student Retention
- Understanding impacts on student enrollment and
external environment. - Goals regarding student enrollment realistic to
trends. - Strategies to address declining enrollment.
30Hot Buttons
- Employment Risks
- Impacts of compensation decisions on employees
- Increased incidence of workers compensation
claims - Increased employment practices liability claims
- Increase in premiums and experience modification
factors
31Hot Buttons
- Investment and Debt Management
- Ensure clear understanding of investments and
debt covenants and how they work. - Multiple revenue streams creates complexity in
control structures requiring skill-sets staffing
may not possess. - Investment policyacceptable investments, asset
classes, etc. - Changes in investment managers.
- Comparison of investment returns to industry, to
budget expectations, etc. - Debt capacity.
- Credit rating/Letter of Credit renewals
32Checks and Balances
- Recognition of risks and exposures
- Implement systems and controls to ensure
compliance and risk management is working - Monitor regularly policies, procedures and
practices
33Keep the Risk Management Program Dynamic
- Remain alert to developing risks.
- Adapt the risk management program and plan
accordingly. - Be flexible to keep pace with ever-changing
environment. - Tap available expertise and resources to stay
apprised of the risk environment - Trustees
- Insurance brokers
- Professional associations
34Resources
- Insurance Broker
- Insurance Company Loss Control Dept.
- Outside Consultants
- Police
- Fire
- Health Inspector
- Utility Company
- OSHA Inspector
- Physicians
- Lawyers
- Architects
- Investment Manager