Nonprofit Governance Risk Assessments in Light of Postal Regulatory Commission’s 10-Year Review
The Postal Regulatory Commission announced a new proposal and rule-making process in its 10-year rate review that started in 2016. Under this 10-year rate review, it is proposed that nonprofit mailers would be charged above Consumer Price Index price postage rates.
The Association of Fundraising Professionals Global (AFP Global) states that a rate hike will now permit the United States Postal Service (USPS) to adjust the prices for each class of market-dominant mail due to:
- Changes to the Consumer Price Index
- A proposal supplemental rate authority mechanism based on declines in mail density and statutorily mandated amortization payments for particular retirement costs.
According to AFP Global, this rate hike that ranges from 25% to 40%, or even more over five years, could have devastating consequences for nonprofit mailers that depend upon stabilized nonprofit mailing rates. AFP Global filed a “Written Statement for the Record” addressing nonprofit mailer concerns to the Postal Regulatory Commission (PRC).
In an industry where direct mail is not dead and remains an extremely viable method of fundraising for nonprofits, this proposal has the impact of costing the sector millions in lost revenues.
Currently, the process is under the comment period with public submissions that were due on February 3 and reply comments due no later than March 4. With the results of the review pending, the nonprofit community faces a tense waiting game regarding the agency’s ruling on the rate system.
What steps can nonprofits take in the interim? I propose that organizations must begin to conduct a formal risk assessment as part of their due diligence governance feature.
The current situation behooves our organizations to conduct risk assessments as part of their stewardship to constituents and donors. Specifically, the board of directors is responsible for this oversight of the organization's operations. As such, nonprofit organizations must:
- Commence conversations on this issue at the board of directors level. These discussions should be occurring as part of its governance function. Governance is about assessing future threats and risks. Therefore, if this topic is not yet part of your board’s meeting agendas, add it now.
- Address the central questions. How would a rate hike impact our organization if it were to be actualized? What is the possible worst-case scenario, and what is the likely best-case scenario? What is the likelihood that this risk will eventuate?
- Develop preliminary plans for an increased future rate hike. This is a financial projection that your organization may want to undertake as part of its risk assessment.
- Devise possible fallback plans that will ameliorate the possibly devastating impacts on your organization. These should be based on your budget projections.
- Implement practices to monitor this particular risk impact, as well as other important areas of concern that could affect the future of the organization detrimentally. Rate increases are only one such example.
As their primary responsibility within governance, boards must constantly focus their attention on apparent risks on the organizational horizon. Undoubtedly, the potential impacts of the proposed changes to nonprofit mailer postage rates is one risk that many organizations will not be able to weather financially.
It is incumbent upon organizations to conduct thorough risk assessments during this waiting period. Proactive planning is required to address this possible rate structure, which may have a disastrous influence on organizational bottom-lines, plus the donors and constituents that the organization serves.
While we cannot predict the outcome of this review, the USPS consistently continues to raise rates incrementally each year. These subtle shifts remain imperceptible yet, over time, they, too, can have a significant impact on an organization’s finances.
Your organization requires a system within its core governance function that focuses on risk assessment and management. With the results of the PRC’s 10-year review approaching, there is no better time than now to establish one.
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