Client: “LA Children’s Foundation,” a rapidly growing nonprofit organization in Los Angeles, CA.

Service Area: Risk, Regulatory & Governance Advisory

Challenge: The Foundation’s rapid growth had outpaced its internal controls and governance structure. The board lacked clear visibility into financial risks and was concerned about potential exposure related to donor fund management and data privacy.

Solution: We conducted a comprehensive risk assessment and implemented a robust new governance framework. By rewriting their internal control policies, clarifying board responsibilities, and establishing an independent audit committee, we protected the organization from financial and reputational risk, securing the confidence of its major donors.

Introduction

The LA Children’s Foundation was a fundraising success story, doubling its annual donations in just three years. But this rapid influx of capital put a severe strain on its small administrative team and informal governance processes. The passionate, mission-driven board was adept at fundraising but lacked the financial and operational expertise to oversee an organization of its new size, leaving it vulnerable.

The Problem: Good Intentions Aren’t Enough

The Foundation’s weak governance structure created significant, though largely unseen, risks:

• Inadequate Financial Controls: The process for approving expenses and managing donor-restricted funds was informal and poorly documented, creating a risk of mismanagement or fraud that could devastate their public trust.
• Data Security Gaps: They collected sensitive information on the children and families they served, but their data storage and privacy policies were not compliant with California’s stringent regulations (CCPA). A breach was a matter of when, not if.
• Board Overreach: With no clear lines of authority, board members were often involved in day-to-day operational decisions, blurring the lines between governance and management and creating inefficiencies.

The Catalyst for Change: A Donor’s Due Diligence

The wake-up call came not from a crisis, but from a potential victory. A major national foundation was considering them for a seven-figure grant. However, the potential grantor’s rigorous due diligence process raised serious questions about their lack of an independent audit committee and their informal financial controls. They were given 90 days to address the deficiencies or forfeit the grant. This ultimatum forced the board to confront its own shortcomings.

Our Strategic Solution

We were engaged to rapidly mature the Foundation’s governance and risk management capabilities.

1. Enterprise Risk Assessment: We facilitated a workshop with the board and senior leadership to identify and rank the top financial, operational, and reputational risks facing the organization.
2. Governance Restructuring: We drafted a new charter for the board that clearly defined its role of oversight versus management. We guided them through the process of establishing and seating a new, independent audit committee comprised of members with financial expertise.
3. Internal Controls Overhaul: We rewrote their key financial policies, implementing clear controls for expense approval, cash handling, and the management of restricted funds. We also developed a new data privacy and security policy to ensure full compliance with state law.

The Transformation: From Vulnerable to Resilient

Our work provided the structure and security the Foundation desperately needed.

• Secured Major Funding: With the new governance framework in place, the Foundation successfully secured the $1.5 million grant and has since used this model to attract other major institutional donors.
• Protection from Risk: The new internal controls have eliminated key financial vulnerabilities, and the new data privacy policy ensures they are fully compliant with the law, protecting them from fines and reputational damage.
• Empowered Board: The board now operates with clarity and confidence. They have the right structure and information to provide effective strategic oversight, ensuring the LA Children’s Foundation can safely and sustainably serve its community for years to come.