Children's Voice Article, March/April, 2005
Liability Exposure and Risk Management
Predicting liability remains an elusive task, but there are two steps every child welfare agency can take.
By Melanie L. Herman
Despite experience facing claims and defending litigation, many leaders of child welfare agencies approach the prospect of managing liability risk with trepidation--and with good reason. Liability risks represent the ultimate unknown in a child-serving agency. Claims against an agency can range from modest demands for medical costs associated with a minor accidental injury to lawsuits demanding millions of dollars for physical and psychological harm and punitive damages.
And the universe of potential claimants has grown. An agency could find itself in a legal battle with recipients of services, volunteers, employees, funding sources, or even partner organizations. Allegations against an agency can include everything from negligent hiring to negligent supervision, breach of confidentiality, retaliation, or third-party harassment. The circumstances behind a claim could include an incident involving two children, or one involving a third-party and a child under the agency's supervision.
Even with these unknowns, however, an agency can't afford to ignore improbable risks nor allow its mission and key programs to be unnecessarily constrained by fear of litigation. How then should executive staff approach the task of managing liability risk? The Nonprofit Risk Management Center (NRMC) suggests a two-pronged strategy child welfare agencies can adapt to suit their individual circumstances and environment.
But first, it's important to take an expansive view of risk management.
Risk Management Through a Wide-Angle Lens
For some organizations, risk management is inherent with the insurance buying process. The insurance industry bears some of the blame for the view that one manages risk by purchasing insurance coverage. Yet, every agency that has received a letter declining coverage knows that advertising slogans promising relief from risk by purchasing insurance are far from the truth.
Nor does coverage remove the sting of liability from risk, as any agency executive who has spent hours producing documents required in litigation, preparing for a deposition, or carefully crafting information about pending litigation for client groups or funders can tell you.
Don't fall into the trap of thinking that meeting the list of minimum requirements for coverage eligibility is evidence of effective risk management. As insurers increase their eligibility requirements, that's easy to do. But the truth is that an expansive view of risk management-one that enables an agency to identify risks long before they materialize and prepare adequately to meet risk head on--must go beyond the confines of an agency's insurance program. Insurance finances the results of the risk, it doesn't manage the risk.
The Risk Management Committee
A thoughtful, long-term approach to risk management requires the integration of risk management into an agency's day-to-day operations. One of the most cost-effective ways to accomplish this is to form a risk management committee, charged with development and oversight of the organization's risk management program.
Ideally, a child welfare agency's risk management committee would include paid staff and board members, as well as professional advisors to the organization. Equally important to include are those who actually deliver the services the agency provides, such as foster parents or teachers.
In a child welfare agency, a risk management committee's primary responsibilities may include
- developing and securing board approval of the organization's risk management goals and policy statement;
- undertaking an annual risk assessment to identify key exposures and strategies;
- reviewing the organization's current risk financing and insurance-buying strategies;
- evaluating services and coverage provided by the organization's insurance agent or carriers, and coordinating the process of putting the agency's insurance program out to bid;
- preparing an annual report on risk management for the board of directors; and
- reviewing the results of risk assessments by outside advisors or consultants, and determining what actions the organization will take.
The Risk Management Plan
All child welfare agencies have already adopted a range of risk management policies and procedures. They have developed various tools and methods to address the possibility of harm or loss, from screening applicants to case management protocols and evacuation procedures.
What many agencies don't have in place is a document that describes their overall philosophy about risk management and discusses specific exposures and related strategies. Such a risk management plan provides a central resource to unify everyone's efforts.
The Nonprofit Risk Management Center (NRMC) is frequently asked to provide a template for a risk management plan. Although a risk management plan need not follow a standard format--and in fact should be customized to cover the issues of greatest concern to the agency--here are some sections found in a typical plan document, based on NRMC's experience in helping nonprofits develop suitable risk management plans:
The plan might also include contact information for the companies that provide insurance-related services to the agency, and a summary of claims-reporting procedures for key coverage areas.
- Risk management program. This may address the agency's risk management philosophy and goals and the roles of key individuals and the risk management plan.
- Governance. This component outlines the agency's governance risks and strategies for addressing those risks, including board policies and procedures.
- Human resources. This section notes key employment risks and explains how the agency manages them.
- Programs and services. This is organized around the actual programs and services the agency offers. For example, a foster care agency would explain its strategies for screening and supervising foster families.
- Client safety. The well-being of those who receive services is a top priority for all community-serving nonprofits, and their risk management plans should note the most serious exposures to liability and strategies to address them. For example, an agency's strategy to address the risk of abuse may include rigorous screening of all volunteer and paid staff, use of a case management protocol, regular performance counseling and feedback for all social workers, and required, documented contact with clients and their primary caregivers.
- Financial management. Every child welfare agency has financial assets that are key to achieving the agency's mission. The agency should outline key financial risks and the strategies to manage those risks, such as its investment policy and internal controls.
- Fundraising and public relations. Strong relationships with funders and donors are key to most agencies' survival and success. This section notes such matters as whether the agency pays commissions to contract fundraisers, the organization's gift acceptance policy, or which staff members are permitted to respond to requests from the media for comments or interviews.
- Facility safety and security. Whether an agency owns, rents, or borrows space, facility safety is a key consideration. Agencies should identify key facility risks and the strategies and protocols to manage these risks. Examples include a policy requiring visitors to check in at a central location, or the maintenance of landscaping and use of security personnel to make the property less of a target for criminals.
- Technology and information management. It's hard to imagine a child welfare agency that doesn't rely on technology to manage client and other information in its day-to-day operations. Managing the risks associated with technology and information collection and storage has become increasingly complicated. Every agency should adopt specific policies about how it will protect vital software, equipment, and information from both accidental and intentional harm.
- Transportation. Transportation risks differ based on whether an agency uses owned vehicles or relies on staff or volunteers who use their personal vehicles. Yet every child welfare agency faces some exposure to loss or harm from its transportation methods. The risk management plan should explain the agency's key transportation exposures and steps to reduce the risk of harm or loss and to lessen the magnitude of losses that occur despite efforts to avoid them.
- Crisis management. This section outlines the agency's strategy for managing a crisis, no matter the cause: natural forces, threat of violence, utility failure, health issues, and others.
- Insurance program. The insurance component describes the agency's insurance-buying strategy, as well as the specific policies it has purchased to finance key exposures.
The risk management committee should consider what additional areas should be covered in the agency's risk management plan, based on unique operations, special client concerns or challenges, the agency's relationships with other providers, and other issues. When all of these factors are considered, the result is a truly customized risk management plan that provides a central source for information about risks and strategies.
Forming a risk management committee and creating a risk management plan are two steps all child welfare agencies can take without incurring prohibitive expense or consuming other vital agency resources, and these steps will help agencies move closer to managing the liability exposures they face.
Melanie Herman is Executive Director of the Nonprofit Risk Management Center, Washington, DC, which provides free help and affordable resources to nonprofits in the United States. Visit www.nonprofitrisk.org, or call 202/785-3891.
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