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![Page 1: CAIS Trustee/Heads Conference Managing Financial and Operational Risk in Independent Schools January 23, 2010 Presented by: Bolton & Company Insurance.](https://reader035.fdocuments.us/reader035/viewer/2022062716/56649dd95503460f94acf938/html5/thumbnails/1.jpg)
CAIS Trustee/Heads Conference
Managing 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 Consulting—Denise Gutches, Business Management Consultant
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Session 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
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School 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
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Risk 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 school’s management and methods of operation.
It is proactive, not reactive.
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Risk 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
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The Board’s Work*
Fiduciary—protecting the school to ensure achievement of mission
Strategic—thinking about strategic and tactical moves to make the school sustainable
Generative—visionary thinking
*Dick Chait—”The New Work of th Board”
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Managing 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 won’t add new program without subtracting old program
Marketing Ensure the price value proposition is clear—
make your school a necessity for families not a luxury
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Responsibilities forRisk Management
Board of Trustees Head of School The Business Officer Human Resources Other Operational Personnel Outside Consultants
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Financial Risk Management and the Board’s Role
Place on the school’s 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.
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The Board’s Role
Financial Risk Management and the Audit Committee’s 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
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Risk Management and the Head’s 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.
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Internal Risk Management AuditTEN KEY AREAS
1. Board Oversight on Fiduciary Matters
2. Operating Policies
3. Student Programs and Activities
4. Facilities Management—maintenance, safety, security
5. Human Resources—employment practices, handbooks, records management
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Internal Risk Management AuditTEN KEY AREAS
6. Legal compliance—report filings, contracts
7. Technology—internal controls, safeguarding data & assets
8. Admissions—services, activities and policies
9. Fundraising—services, activities and policies
10. Environmental—indoor air quality, noise, lighting hazardous materials
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The Risk Management Committee
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Risk Management Audit
1. Identify potential risks in each area
2. Understand degree of risk exposure:
Likelihood of exposure
Extent of Potential Loss
Type of exposure that could occur
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Responsibilities of The Risk Management Committee1. Identify and analyze loss
exposures
2. Examine alternative risk management techniques
3. Select Risk Management techniques
4. Implement Risk Management techniques
5. Monitor results
Select & ImplementRisk Management
Technique
Monitor Results
Identify Exposures& Examine Risk
Mgmt Techniques
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Risk Management: Insurance
Audit Existing Insurance and Risk Management
Program Benchmark Existing Coverage and Limits Evaluate Assumption of Risk
Self Insurance Deductibles Risk Retention Groups
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Risk 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
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Risk Management: Insurance
Don’t “shop” on price alone; know what you are buying
Don’t 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
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Risk Management:Integrity 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
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Recommendations for Best Practices
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1. Place on the Board’s strategic agenda
2. Employ long-term thinking—proactive not reactive
3. Establish an Audit Committee or Clarify Audit Committee’s Role in Risk Management Oversight
4. Conduct Internal Risk Management Audit and Update Annually
Risk ManagementBest Practices
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5. Implement critical policies and update regularly
6. Conduct Insurance Risk Management Audit7. Review and benchmark results on a “peer to
peer” basis8. Review and benchmark employee
benefits/retirement plans
Risk ManagementBest Practices
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Annual Audit Policy Conflict of Interest Whistleblower Document Retention/Management Banking and Cash Management Policies Fundraising—Gift 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
Policies Schools Should Have
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Current Critical Issues in Risk Management
“Hot Buttons”
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Ethics and Risk Management Tone at the Top—management’s ethics and
integrity are unimpeachable and tone permeates organization
Conflicts of Interest Policies to safeguard against actual and perceived
conflicts—how transactions identified and brought to the Board; process to identify “excess benefits.”
Contemporaneous discussion and documentation is critical.
Hot Buttons
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Regulatory Compliance Awareness of breadth and nature of regulations the
school is subject to and protocols for compliance: IRS—990’s; 403(b) retirement plan changes OSHA Federal funding
Hot Buttons
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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
Hot Buttons
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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.
Hot Buttons
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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
Hot Buttons
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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 policy—acceptable 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
Hot Buttons
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Checks 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
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Keep 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
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Resources
Insurance Broker Insurance Company Loss Control Dept. Outside Consultants Police Fire Health Inspector Utility Company OSHA Inspector Physicians Lawyers Architects Investment Manager