Common Risks Faced by Nonprofit Boards

It is up to nonprofit boards and its members to advise and advance a nonprofit’s mission. Staying true to the organizations they serve; boards must focus on risk management strategies. Nonprofits face a wide variety of risks, some of which lead to legal implications. The truth is that it is impossible to avoid risk altogether. However, if you pay attention to these areas, there are aspects that can likely be improved. When members are proactive in developing and communicating internal and external policies, risks will be managed much better.

Consider these common occurrences that nonprofit boards are hit with and the valuable tips to address them.

Exposures from Social Media Use

Social media and online networking are inevitable components of today’s nonprofit inner workings. New ways of operating come with unique risks. For instance, using social media to check how well employees fit within an organization’s culture can easily lead to privacy violations and discrimination claims. What if you were to allow employees to express their views on a nonprofit’s websites, blogs, or social media? This can be defamation exposure. Policies and procedures must evolve with the times. Members must reassess what is working, what is no longer needed and establish updated methods of communication and development policies.

Unhappy Staff and Volunteers

If staff or volunteers are unhappy with the organization or the way something is run, the legal risk rises. For example, workplace bullying happens way too often, and it usually is not addressed for far too long. If there is any “unlawful employment practice,” meaning that an employee is subject to an abusive work environment, employers can be held liable. Boards should do everything in their power to prevent the infliction of emotional distress or assault. There should be a user-friendly complaint procedure established, and the top executives should set the tone for appropriate workplace behavior.

IRS Form 990 and Federal Tax-exempt Status

There are many benefits that come with applying to the IRS for recognition of federal tax-exempt status, although they come with a variety of restrictions. Failure to comply with the regulations not only puts the tax-exempt status in jeopardy, but it also may result in other penalties like “intermediate sanctions” for “excess benefit transactions.” To protect the organization’s tax-exempt status, it is important that board members understand the restrictions that come with the tax laws and use proper procedures to respond to the requirements and reporting mandates.

Lobbying and Political Activity Compliance

While political issues often go hand in hand with the mission of a nonprofit, the IRS restricts the ability of many tax-exempt nonprofits to engage in governmental activities. Public charities are legally mandated to avoid all political campaign activities, with lobbying within specified limits. However, certain associations may engage in limited political campaign activities and are permitted to lobby. Nonprofit board members must be clear on where the organization lies in engaging in particular advocacy. It is crucial to follow federal and state lobbying laws.

Lacking Board Policy and Practice Coherence

Is the organization truly reflecting what they claim it stands for? Nonprofit operations sometimes reveal that their practices do not match their mission. For instance, if a nonprofit is promoting ethics but the board is being paid without sufficient documentation. It is often helpful to examine the practices closer, making sure it fits the nonprofit’s mission. Checking in with the governance operations to ensure it aligns with its goals is worthwhile to prevent many issues down the line.

Failure to Manage Conflicts of Interest

How are the members of the nonprofit boards avoiding and tending to conflicts of interest? If conflicts of interest are not understood, the organization is at significant risk of losing public confidence and damaging its reputation. This is why it is so important to use a well-drafted conflict of interest policy and a transparent disclosure procedure for managing conflicts. The goal is that nonprofit managers and volunteer leaders understand that conflicts may arise any time a manager, volunteer, or any interest conflicts with the interests of the nonprofit. Not all conflicts are bad, but the board must be able to effectively handle and establish a process for identifying and managing them.

Reliance on the Goodwill, Good Nature of Others

Partnerships are needed for nonprofits and nonprofit boards to thrive, but the connections can lead to legal risk when they rely on partners’ goodwill, promises, and insurance coverage. The board must use contracts to clarify the responsibilities of each party and have relationship roles in a written document signed by authorized representatives. This can help avoid assumptions and determine the actions if relationships expire. Details must be clear prior to collaboration. Misunderstandings will still happen, which emphasizes why NJ Nonprofit Insurance is so important.

About David G. Sayles Insurance Services

At David G. Sayles Insurance Services, we help our clients decide which of these options is best for them based on their current situation and risk factors.  Contact us at 1-855-977-1842 or insureme@dsayles.com for a consultation!