How to Protect Yourself as a Non-Profit Organization Board Member

Managing or serving on the board of a nonprofit organization(NPO) remains both a noble and necessary activity. NPOs are often involved in protecting the vulnerable; providing services to those in need; and filling educational gaps for those subject to being mislead by charlatans and thieves to name just a few activities.

Director's and Officer's Liability Risks
However, despite these noble and necessary efforts, NPOs' Directors and Officers(D&O) have liability risks and need to be clear as to what these risks are and what adequate protection consists of. In this litigious society NPOs who are sued are experiencing an average of $235,000 in legal fees even if the suit is unfounded.

Specifically, Directors and Officers (D&O) are exposed to such employment claims as wrongful termination, breach of employment contract, discriminatory hiring practices, failure to employ or promote, retaliation, negligent evaluation, sexual harassment, wrongful discipline, invasion of privacy, deprivation of career opportunity, employment related defamation, wrongful infliction of emotional distress, and mismanagement of employee benefit plans. Employment claims represent the area where more than 80% of the claims arise.

The Need for an Employee Handbook
Therefore, before even the first employee is hired an Employee Handbook should be developed based on the models currently being used in similar type of service organizations and modified later if necessary. The employee should be given one and required to sign a statement that they have received it. A workers compensation policy which covers injury, illness, and death that result from workers performing their job or being on the job is also essential.

Other Types of Claims
The other types of claims that arise are non-employment claims include misallocation of funds, breach of fiduciary responsibilities, self-dealing/conflict of interest, anti-trust or restraint of trade violations, defamation, invasion of privacy, negligent financial advice to third parties, failure to maintain insurance, interference with contract, breach of contract, failure to accredit or certify, and infringement of trademark, patent, or copyright.

Lawsuits can originate from such diverse sectors as beneficiaries who feel that they are entitled to more than they received; board members who disagree with a majority decision on the use of funds; donors who feel that their contributions have not been used to further the expressed aims of the organization; state attorney generals who institute legal proceedings against the board for issues such as mismanagement of funds and antitrust violations, and other government officials such as the IRS and the Dept. of Labor alleging violation of federal or state laws.

The Difference Between a D&O and a GL policy
It is important for NPOs to make the distinction between what a D&O liability policy covers and what a General Liability (GL)policy covers. A GL policy does not cover what a D&O liability policy is designed to cover. A GL policy is broad coverage and is designed to cover bodily injury, property damage, theft, criminal acts, deliberate fraudulent acts, pollution, nuclear reactor or radiation, and litigation pending prior to the original inception date of the policy.

To narrow this down, a GL policy then essentially covers bodily injury and property damage, whereas the D&O policy covers wrongful acts which includes "wrongful management decisions" and never includes bodily injury and property damage. Therefore, it is essential that an NPO have both policies.

To summarize, the D&O liability policy must not only cover the claims made against the organization, but also full prior acts, and defense costs. Moreover, not only should the D&Os be covered, but also the employees, volunteers, and committee members. The best D&O liability policy does all of this.



Are you a board member of a nonprofit organizations? Have you had any of these concerns? Call (773) 614-3201.

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Guidelines for Developing a Budget for a Non-Profit Organization

Budgeting needs to be placed second in a two-part approach with planning. When budgeting is teamed with planning, the figures cease to be just hazy projections snatched out of the sky, but logical predictable numbers that flow easily out of the overall plan. Budgeting without planning gives you little more than a record of income and expenses. Planning puts you in control of that record, and provides both the means and the impetus to use those numbers to insure the organization's success.

Planning starts with ideas. It is knowing where you would like your organization to be in the next year, the next two years, or the next five years and in mapping out the most direct route to get there. Perhaps you would like to double your membership. Or, perhaps you want an office and office equipment. At this point it is not as important what the substance of the objectives are, but rather that you know what they are. Once you know where you are and where you want to go, budgeting becomes the dollars and cents needed to be acquired and expended during a particular time in order for the end to be reached.

Once there is agreement as to what the objectives will be, the next step is to determine what particular programs are necessary in order for these objectives to be met. In other words, for each objective there will be several tasks which must be completed by specific areas of the organization. In addition, there will be income sources which must be identified and funds that must be allotted.

Objectives then make up the activity schedule from which the monetary side of the plan can be developed. The budget then begins to evolve.

It is extremely important to generate objectives from each area of the organization, and it should be the responsibility of each area to determine what part it plays in the overall mission. Moreover, it should not be overlooked in planning objectives that the governing board itself will have objectives regarding new projects and administrative changes.

Once the objectives are agreed upon, they should be turned over to the particular area of the organization to which they apply These areas, in turn, will determine what specific tasks must be accomplished to make the objectives realities. Some of the tasks will carry monetary costs, while the price of others cannot be measured except in volunteer hours. In other words, some tasks will represent expenditures, others income and others are fulfilled by volunteer time only.