Risk Management Policy Analysis Paper

Last Revised March 25 2010

Back Ground

The Association received a directive that came in from MCSS entitled Transfer Payment Accountability which was distributed to the Board in February 2008. The Ministry has received scathing reviews from the Auditor General’s office and is trying to do a better job to keep the Auditor General happy. A copy of the section of the Auditor's General's office entitled Community Accommodation Program was distributed to the Board in March 2008. The Directive given by the Minister is said to be part of a framework of directives and policies, and is particularly supported by the Accountability Directive, 1997, and the Ministry of Finance Risk Policy. The attitude of the Ministry is stated in the following quote from the Transfer Payment Accountability Directive:

Key to the management of transfer payment programs is the overlay of a risk-based approach. Risk management practices provide the opportunity to establish the optimum level of oversight, control and discipline enabling ministries and classified agencies to manage risk in changing environments and help provide the proper level of assessment that program / service delivery objectives are being met.

The terms "Optimal level" referring to "oversight, control and discipline" and "Service Delivery Objectives being met" should be highlighted since our Association views many of the Ministry's recent initiatives to be counter productive to service delivery objectives being achieved (effectiveness) at reasonable costs (cost effectiveness or efficiency).

At its first meeting after receiving the Directive our Executive Committee identified the following first risks to prioritize

That focus for a meaningful and satisfactory life for consumers becomes lost in the concern for financial risk management.
That adequate annual funding is not secured.
That government continues to fund on an uncertain fiscal basis.
That Transition for children to youth programs will fail due to lack of funding
That Client is free to choose but that KACL are held responsible.
Sexual abuse
Quality of life sharing and Family Home

The Association, in general, believes that we do a reasonably good job managing financial responsibility especially in the light of MCSS practices. It believes that both the Association for Community Living and MCSS would be better if the MCSS engaged in more business like practices.

Risk Management and Risk Tolerance Defined

Risk Management is a process designed to identify potential events that may affect an organization, manage risks within its risk appetite, and to provide reasonable assurance regarding the achievement of the organization's objectives. (Adapted from CSAE's Risk Management Toolkit for not-for-profit executives )

Risk Management is a discipline that enables people and organizations to cope with uncertainty by taking steps to protect its vital assets and resources ( Risk Management:Buying Into it Insurance & Liability Resource Centre for Nonprofits).

Assets of KACl

People:

These include Board, Staff, Clients, Friends and Volunteers

. People assets include the above mentioned people and the talents, commitment and community connections they bring to the organization

Reputation/Goodwill

Reputation and goodwill increases an organization's ability to recruit Board, staff, and volunteers, and is required for the overall health of the organization.

Property

Property includes buildings, land, chattels such as furniture, office equipment etc and intellectual property such as logos, copyrights and trademarks) as well as cash and securities.

Income

Income includes government grants and contracts, fees for services, investment income, donations, and membership dues

The risk management process provides a framework for identifying risks and deciding what to do about them. The risks that an organization is willing to take flow from the objectives that it is trying to achieve. Risk is an inherent feature of all activity and to be in business is to deal with risk. Every organization will have different exposures to risk and a willingness to take on risk. There is no such thing as "zero risk". An organization with significant financial resources may be willing to assume greater risks than an organization facing financial difficulties. Risks tolerance is influenced by the objectives of the Organization and the activities necessarily undertaken to achieve such objectives. An organization that does nothing suffers the greatest risk of all - that of becoming irrelevant. Certain key leadership roles play an important part in risk management, particularly the President and Treasurer, but ultimately the whole Board must bear the responsibility for determining its appetite for risk.

Risk Response

There are four possible types of response with possibilities of combining responses:
Acceptance: retain the risk
Reduction: Take action to avoid exposure to risk
Sharing: Part of risk is transferred or shared to bring it within risk tolerance, e.g. insurance transfer
Avoidance: avoiding the risk by avoiding the activities that exceed the Organization's appetite for risk

In determining risk response, management must consider the effects of potential responses on risk likelihood, impact as well as the cost versus benefits of potential responses. Some activities that bear significant risk may be tolerated because of their critical role in achieving the mission of the organization. The following table is only suggsetive of the possible frequency of the risk response

Severity	Slight	Significant	Severe
Frequency	Slight	Significant	Severe
Almost never	Acceptance: retain the risk	Sharing-Part of risk is transferred or shared to bring it within risk tolerance	Reduction: Take action to avoid exposure and /or Sharing i.e. insurance transfer
Slight	Acceptance: retain the risk	Sharing(See Above)
Moderate		Sharing (see Above)
Definite	Consider loss prevention techniques if possible		Avoidance: avoiding the risk by avoiding the activities that exceed the Organization's appetite for risk

Appendix A

Excerpts from MCSS Transfer Payment Accountability paper

Risk assessment is used in the design of transfer payment programs, the selection of eligible transfer payment recipients to deliver programs, and the choice of appropriate accountability requirements for transfer payment recipients.

Defining expectations

Ministries and classified agencies must define the objectives, functions, eligibility criteria, and recipient obligations for all transfer payment programs. Transfer payments must only be made under a specific transfer payment program.

Agreements

For entitlement programs, the agreement includes written representations on the part of the recipients that they meet eligibility criteria, supported by whatever proofs are required by particular programs

Also, signed agreements between ministries or classified agencies and transfer payment recipients must be in place which:

set out expectations, terms and conditions of funding to support good governance, value for money, and transparency in the administration of transfer payment funds;
document the respective rights, responsibilities, and obligations of the ministry or classified agency and the transfer payment recipient;
include specific, measurable results for the money received, reporting requirements, and any corrective action the government is entitled to take if agreed upon results are not achieved; and
subject to FIPPA and other legislation, allow independent verification of reported program and financial information by independent professionals and the Auditor-General of Ontario.

Ministries and classified agencies must strive for a balance between public service accountability and the transfer payment recipient’s responsibilities and capacity to deliver service. Risk management is the mechanism that enables this balance.

Ministries and classified agencies must establish risk criteria that are tailored to all transfer payment programs and transfer payment recipients in order to ensure that service delivery objectives are achieved and risks are consistently and comprehensively identified and addressed.

Transfer payment recipients’ reports must focus on the results achieved for the funds provided. Ministries are to determine outcome reporting expectations.
Specific reporting requirements must be in proportion to the needs of the ministry, the capacity of the recipient, and the risks related to the program.
The minimum reporting requirement is an annual report or, for short-term projects completed within a fiscal year, a final report. Where multi-year contracts are developed an annual report is required

Responsibilities

Chief Administrative Officer / Director of Finance

The Chief Administrative Officer and Director of Finance are accountable to the Deputy Minister for:

ensuring compliance with this directive and Ministry of Finance controllership policies
establishing a process to assess and manage risk; and
assisting with the application of risk assessment as well as financial management and control policies.

Program Head (Director or Manager)

The Program Head is accountable to the Assistant Deputy Minister or Deputy Minister for

administering the transfer payment program while meeting the mandatory requirements of this Directive;
maintaining satisfactory records in keeping with applicable legislation, directives and policies;
monitoring transfer payments made under the transfer payment program;
assisting with transfer payment program financial reconciliation and risk-based reviews as required;
developing a business case for new transfer payment programs; and
undertaking risk-based reviews of transfer payment programs regularly

Appendix B References

Imagine Canada Web site: www.riskmanagement.imaginecanada.ca

Insurance Bureau of Canada

Insurance Bureau of Canada Glossary of Insurance Terms

Insurance & Liability resource Centre for Nonprofit Resource Binder, Toronto: Imagine Canada 2008

www.lindagraff.ca Linda Graff and Associates

Canadian Centre for Occupational Health and Safety

Non-Profit Risk Management Center

Vinette Paulette and Stuart Hartley, Risk Management Toolkit for not-for-profit executives, Toronto CSAE

Appendix C Risk Factors and Mitigation Strategies

Risk Factors and Mitigation Strategies -Governance and Management
Potential Risk	Potential Impact	Prevention Strategy	Mitigation Strategy /Transitional Steps
The organization lacks vision, strategy and forward planning	Members and beneficiaries of Organization's needs are not fully addressed	Mission Statement Long term Goals Service Delivery Principles Have Board commit to regularly reviewing Mission, Goals, Service Delivery Principles Have Annual Training program on Values of the Association	Ensure representatives of Consumers, Families have opportunities to input and serve on Board
Board Members lack commitment or required skills	Board decisions lack inform understanding Directors operate with self-interest	Recruit board members according to a list of required competencies spelled out in a recruitment process	Document existing Board members competencies
Government continues to fund on an uncertain fiscal basis.	Association delivers lower level of service Board and Management Staff subjected to preventable levels of stress		Continue to represnt to Government the desire to have certainty in terms of government funding
Loss of Key Staff and failure to Secure Qualified Management Staff	Day to Day Inadequate Supervision, Key duties neglected, Lost experience	Develop a Succession Plan	Identify desired Attributes of existing positions, Consider core competencies
Conflict of interest	Association's Assets compromised	Review Association's policy with Board members annually
Inadequate reporting to members and membership loss	Loss of ability to more effctively advocate		Quarterly Newsletter top membership and Public

Risk Factors and Mitigation Strategies - Operational Risks
Potential Risk	Potential Impact	Prevention Strategy	Mitigation Strategy /Transitional Steps
That Transition from Children and Youth Programs to Adult Programming will fail due to lack of funding	Delay in adults entering adult programs	Board to be informed of level of individuals on waiting list for services due to inadequate funding	Work with ISN to place Clients as resources permit
That Client is free to choose but that KACL are held responsible. Consumers living Independent with Increasing Medical Needs	Public Relations Problem, Service Complaints to MCSS	Memorandum of responsibilities signed by Consumers or Committees; Next of Kin Addition to Public Realtions Strategy ; Document Consumer's Competency	Require Clear Guidelines; Document Competency
Quality of life sharing and Family Home	Consumers fail to enjoy a meaningful and satisfactory life	Currently lifesharing's monitor biannually
Sexual abuse of Clients	Consumers / Survivor's Dignity Threatened	Criminal Reference Checks completed on All Staff , Discrete Inquiries Policy, Sexual Education Program for all consumers with instruction for reporting abuse
Health and Safety Issues	The Health and Safety of Employees is marginalized	Health and Safety Policy, Violence in the Work Place	REvise Violence in Workplace, Harassment Policy, Continue to review Health and Safety Issues
Liability Claims		Insure the acts of Board,management and staff as recommended by insurance advisor	Follow legal counsel and insurance company advice
Emergency Responses			Draft H1N1 Preparedness plan
Advese publicity	loss of reputation	Follow a detailed crisis management plan(That includes a communication plan)
Inadequate Volunteer Guidelines			Research Driving Guidelines
Self-Injurious Behavior			Post Guidelines
Confusion Re: KACL Staff Responsibilies Re DNR Orders and POW for Care			Research Issue

Risk Factors and Mitigation Strategies - Financial Risks
Potential Risk	Potential Impact	Prevention Strategy	Mitigation Strategy
Inadequate financial and operational controls	Inability to detect misappropriation of assets	Working with Auditors, document a detailed system of financial and operational controls	Commence in April 1st 2008 to document system in place until larger scope process can be established
Poor management of reserve or investment funds	lost opportunities to earn interest	Adopt an investment policy and guidelines detailing treatment of all types of funds; Report Annually to Board	Document existing system; Select a short-term strategy to follow while developing a long-term one
Annual Funding not secured for Services Provided	Over Drafts: Ultimate Bankruptcy	Adopt a schedule of levels of Continuing Accumulated Surpluses minimums for which Board should receive notice; Adopt a schedule of levels of Over Draft for which the Board should receive notice
Inadequate Insurance Coverage	Loss of valuable asset & Financial Exposure	Securing of Adequate Insurance Protection<	Draft Paper on Insurance Coverage; Review Insurance Coverage on Annual Basis

Risk Factors and Mitigation Strategies - Compliance Risks
Potential Risk	Potential Impact	Prevention Strategy	Mitigation Strategy
Non-compliance with legislation with legislation and regulators examples, Income tax, Charitable returns	Compromised not-for profit status and become subject to non-compliance penalties	Monitor compliance to a compliance schedule	Negotiate with government
Regulatory reporting requirements are not met	Annual filing of Director's names and addresses overlooked. Remittance of employee and employer deductions annual summary not made	Allocate reporting functions and assign supervisory reporting (This may be by report to Board?)	Negotiate resolution by Government
Failure to pay taxes	GST not remitted; PST Remitted (if required) ; Employee income tax not remitted; Liable for penalties and interest; Government likely to audit organization	Document payment schedule , assign monitoring responsibilities