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Mystery liability – Nonprofit officers in the dark

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As many as 50 percent of all nonprofit directors and board members do not purchase liability insurance that would protect them from a lawsuit, the San Antonio Business Journal reports.

“When someone volunteers their time to serve on a board their heart is always in the right place,” Alfred Martinez, executive director for the San Antonio Rescue Mission, told the Business Journal. “But many times they do not take the time to inform themselves about their full financial responsibility as a part of the organization.”

Glen Yale, author of the book “Am I Liable? Responsibilities and Liabilities of Texas Non-Profit Directors,” told the Business Journal that as few as five percent of prospective board members or executive directors examine policies or risk management programs before accepting a position on the board. An additional 25 percent investigate their liability only after they have accepted a board membership.

Yale advises potential board members to investigate a nonprofit’s organizational documents, article of incorporation, bylaws and application for tax exempt status before taking a board position.

Sandy Duncan, president of Associated Consulting Services in Austin, told the Business Journal that in today’s nonprofit climate board members need to be more careful than they used to be.

“It used to be that serving on a board was a risk-free endeavor,” Duncan told the Business Journal. “But today that is not the case. Nonprofits have their fair share of problems and are being sued because of them.”

Duncan, a former Kansas legislator who has been advising nonprofits for 20 years, suggests a three-step process for dealing with nonprofit liability.

First, nonprofit officers need to determine how much risk they will personally be responsible for. Second, officers need to purchase insurance and have cash reserves on hand to handle the costs of liability. Finally, officers need to make sure their organization has policies and procedures in place to help avoid future lawsuits, the Business Journal reports.

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