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Important Risks Nonprofit Board Members Need to Understand

nonprofit board members

Many people don’t realize that, in many ways, non-profit organizations run the same way for-profits organizations run, at least those with employees. As such, nonprofit organizations are accountable for their employment practices, and so are their board members.

Employment practices are making headlines today with an increased focus on diversity and harassment. However, employment practices rules and regulations go much deeper than those two issues, and board members can be held personally liable if the non-profit does not adhere to the prevailing laws.

Policies and Procedures

Most large nonprofit organizations, with substantial staffs, are typically aware of their responsibilities regarding employment practices, although board members should still request the policies, documentation, and proof of insurance. Smaller nonprofits can often be run with a lean staff, or wholly by volunteers, and though they are making their best efforts to do “good” they can easily be missing important policies and procedures that leave them open to lawsuits.

Employment practices policies and procedures need to be documented, and enforced, regardless of the size of the nonprofit (and for-profit). The first step is to understand the basics required by the laws governing the organization, including local, state, federal, and potential international.

Reducing the Board’s Liability

The National Council of Nonprofits offers advice on “Managing Nonprofit Employees” and lists as a best practice to “ask your insurance broker/agent for employment law guidance and/or resources.” As a nonprofit board member, this is not only your right but your obligation to ensure that the nonprofit is functioning properly. Your insurance broker/agent can assist with how best to limit risk, and often the Employment Practices Liability insurance company has resources that can help guide your organization in compliance.

Items to discuss with your insurance broker/agent include:

  • Hourly workers (wage laws)
  • Hiring and firing policies
  • Employee theft
  • Coverage for volunteers
  • Background checks

Additionally, board members should speak with the Executive Director on how the organization manages these same topics. Ask questions such as:

  • How is hourly workers’ overtime compensation calculated?
  • What is the hiring process?
  • Who has access to the funds, and why?
  • How often are the bank balances reviewed?
  • Is there any cash in the office? If so, is it locked?
  • What is the firing process?
  • What is the breakdown of the staff: full-time, part-time, volunteer?

Board members have accountability for the actions of the nonprofit they serve. Many board members consider it a privilege and don’t realize the weight of the responsibility and potential liability that also comes with the position. The best board members are those who get involved with the inner workings of the nonprofit. They help ensure the appropriate policies and procedures, as well as insurance coverage, are in place, reducing the risk for the whole board and supporting the organization’s longevity.

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