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Directors and officers (D&O) liability insurance enables board members to make decisions without fear that they’ll be personally responsible for any related litigation costs. Such coverage is common in the business world, but fewer not-for-profits carry it. Nonprofits may assume that their charitable mission and the good intentions of volunteer board members protect them from litigation. These assumptions can be wrong.

Asked and answered

Here are several FAQs to help you determine whether your board needs D&O insurance:

Whom does it cover? A policy can help protect both your organization and its key individuals: directors, officers, employees and even volunteers and committee members.

What does it cover? Normally, D&O insurance covers allegations of wrongful acts, errors, misleading statements, neglect or breaches of duty connected with a person’s performance of duties. Examples include:

Mismanagement of funds or investments,
Employment issues such as harassment and discrimination,
Self-dealing,
Failure to provide services, and
Failure to fulfill fiduciary duties.

Are there coverage limitations? D&O policies are claims-made, meaning that the insurer pays for claims filed during the policy period even if the alleged wrongful act occurred outside of the policy period. The flip side of this is that D&O insurance provides no coverage for lawsuits filed after a policyholder cancels — even if the alleged act happened when the policy was still in place.

What if we need to make a claim after our policy has been canceled or expired? You might still be covered if you bought extended reporting period (ERP) coverage. It generally covers newly filed claims on actions that allegedly occurred during the regular policy period.

How do we file a claim? When a legal complaint is filed against your nonprofit, contact your insurer to determine whether the matter is insurable and includes defense costs. Most policies reimburse the insured for reasonable defense costs, in addition to covering judgments against the insured.

How can we keep costs down? Think seriously about the people and actions that should be covered and the amount of protection you need — and don’t need. For example, you probably don’t need coverage of bodily injury or property damage because these claims usually are covered by general liability and workers’ compensation insurance. As with most insurance coverage, D&O premiums are likely to be lower if you opt for higher deductibles.

Making the decision

Not every organization needs D&O insurance. In some states, volunteer immunity statutes provide limited protection for negligence. Such protection, however, doesn’t extend to federal statutes. If you’re unsure, contact us.

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Signs of financial distress in a not-for-profit can be subtle. But board members have a responsibility to recognize them and do everything in their power to avert potential disaster. Pay particular attention to:

1. Budget bellwethers. Confirm that proposed budgets are in line with strategies already developed and approved. Once your board has signed off on the budget, monitor it for unexplained variances.

Some variances are to be expected, but staff must provide reasonable explanations — such as funding changes or macroeconomic factors — for significant discrepancies. Where necessary, direct management to mitigate negative variances by, for example, implementing cost-saving measures.

Also make sure management isn’t overspending in one program and funding it by another, dipping into operational reserves, raiding an endowment or engaging in unplanned borrowing. Such moves might mark the beginning of a financially unsustainable cycle.

2. Financial statement flaws. Untimely, inconsistent financial statements or statements that aren’t prepared using U.S. Generally Accepted Accounting Principles (GAAP) can lead to poor decision-making and undermine your nonprofit’s reputation. They also can make it difficult to obtain funding or financing if deemed necessary.

Insist on professionally prepared statements as well as annual audits. Members of your audit committee should communicate directly with auditors before and during the process, and all board members should have the opportunity to review and question the audit report.

Require management to provide your board with financial statements within 30 days of the close of a period. Late or inconsistent financials could signal understaffing, poor internal controls, an indifference to proper accounting practices or efforts to conceal.

3. Donor doubts. If you start hearing from long-standing supporters that they’re losing confidence in your organization’s finances, investigate. Ask supporters what they’re seeing or hearing that prompts their concerns. Also note when development staff hits up major donors outside of the usual fundraising cycle. These contacts could mean the organization is scrambling for cash.

4. Excessive executive power. Even if you have complete faith in your nonprofit’s executive director, don’t cede too many responsibilities to him or her. Step in if this executive tries to:

• Choose a new auditor,
• Add board members,
• Ignore expense limits, or
• Make strategic decisions without board input and guidance.

Proceed with caution

The mere existence of a financial warning sign doesn’t necessarily merit a dramatic response from your nonprofit’s board. Some problems are correctable by, for example, outsourcing accounting functions if the staff is overworked. But multiple or chronic issues could call for significant changes.

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Is your not-for-profit overpaying unemployment tax? Many employers are and don’t know it. Here’s how to find out and possibly reduce unemployment costs. (more…)

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Auditors examining a not-for-profit’s financial statements spend considerable time on the revenue figures. They look at the accounting methods used to record revenues and perform a detailed income analysis. You can use the same techniques to increase your understanding of your organization’s revenue profile. (more…)

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The amount of money your not-for-profit raises in fundraising campaigns is meaningful, but so is how efficiently you’re able to raise it. Such costs can be measured using two metrics: Cost ratio and return on investment (ROI). Let’s take a look. (more…)

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If your not-for-profit relies heavily on a few funding sources — for example, an annual government or foundation grant — what happens if you suddenly lose that support? The risk may be compounded if you generally spend every penny that comes in the door and fail to build adequate reserves. Bottom line: If your nonprofit hopes to serve its community many years into the future, you need to think about financial sustainability now. (more…)

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The relatively new federal procurement standards significantly alter the way not-for-profits receiving federal funding handle purchasing. And while your organization may have changed its written policies to comply with the revised standards, it may be easier to follow the rules on paper than in practice. (more…)

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When a donor promises to make a contribution at a later date, your not-for-profit likely welcomes it. But such pledges can come with complicated accounting issues. (more…)

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Your not-for-profit is likely governed by a core group of board members. But the addition of an informal advisory board can bring complementary — and valuable — skills and resources to this group. (more…)

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For most not-for-profits, there’s no such thing as too much good publicity. If you’re struggling to get enough attention from media outlets, follow these steps: (more…)

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Like their for-profit counterparts, not-for-profits are increasingly allowing employees to telecommute. Done right, work-at-home arrangements, either full time or on an occasional basis, can pay off for both employers and employees. But you’ll need to be proactive to avoid some pitfalls. (more…)

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Has your not-for-profit’s program lineup remained unchanged for at least a couple of years? If so, consider using the tradition of spring cleaning to review your offerings. Some of your programs might be due for replacement. (more…)

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Nonprofits don’t face the same government regulations or public scrutiny as for-profit public companies do. But that doesn’t mean your board can afford to get slack about financial governance. Donors and watchdog groups pay close attention to organizations’ Forms 990 and the media is quick to pounce on rumors of fraud in the nonprofit sector. That’s why you should regularly evaluate your board’s financial oversight (if you aren’t already doing so) and recruit new members or outside advisors with financial expertise if necessary. (more…)

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Cloud computing promises lower technology costs and greater efficiency and productivity. Yet many nonprofits have yet to move to the cloud, possibly because their staffs are smaller and their IT expertise is limited. Fortunately, cloud computing is a simple concept that’s easy to adopt. (more…)

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Social media can be an inexpensive, but effective, way to market a company’s products or services. Like most businesses today, you’ve probably at least dipped your toe into its waters. Or perhaps you have a full-blown, ongoing social media strategy involving multiple sites and a variety of content. (more…)

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Corporate matching can double the value of donors’ gifts — a bonus no not-for-profit organization can afford to pass up. Are you doing everything you can to educate your financial supporters and their employers about matching gifts? (more…)

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The key role of a not-for-profit’s internal auditors was once limited largely to testing financial and compliance controls and reporting their findings to the organization’s leadership. But today, with their cross-departmental perspective, internal audit staff (whether employees or outside consultants) can help anticipate and mitigate a variety of risks, improve processes — and even help evaluate your nonprofit’s strategies. (more…)

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According to the 2017 Nonprofit Employment Practices Survey by human resources consultant Nonprofit HR, charities are hiring at a faster pace than for-profit companies. Of the not-for-profits surveyed, 50% reported that they would add staffers, vs. 40% of for-profit businesses.
Yet plenty of nonprofits are still hesitating to add employees to the payroll. If your organization is on the sidelines but thinking about hiring in the near future, the following three questions can help you decide: (more…)

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Countless nonprofits have partnered up for strength and survival in recent years. But the success of these arrangements depends on careful planning and oversight. (more…)

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The number of taxpayers who itemize deductions on their federal tax return — and, thus, are eligible to deduct charitable contributions — is estimated by the Tax Policy Center to drop from 37% in 2017 to 16% in 2018. That’s because the recently passed Tax Cuts and Jobs Act (TCJA) substantially raises the standard deduction. Many not-for-profit organizations are understandably worried about how this change will affect donations. But this isn’t the only TCJA provision that affects nonprofits.

Donors have fewer incentives

In addition to reducing smaller-scale giving by shrinking the pool of people who itemize, the TCJA might discourage major contributions. The law doubles the estate tax exemption to $10 million (indexed for inflation) through 2025. Some wealthy individuals who make major gifts to shrink their taxable estates won’t need to donate as much to reduce or eliminate their potential estate tax.

UBIT takes a bigger bite

The new law mandates that nonprofits calculate their unrelated business taxable income (UBTI) separately for each unrelated business. As a result, they can’t use a deduction from one unrelated business to offset income from another unrelated business for the same tax year. However, they can generally use one year’s losses on an unrelated business to reduce their taxes for that business in a different year. The TCJA also includes in UBTI expenses used to provide certain transportation-related and other benefits. So, the unrelated business income tax (UBIT) a nonprofit must pay could go up.

High compensation risks new tax

Nonprofits with highly compensated executives may now potentially face a 21% excise tax. The tax applies to the sum of any compensation (including most benefits) in excess of $1 million paid to a covered employee plus certain large payments made to that employee when he or she leaves the organization, known as “parachute” payments. The excise tax applies to the amount of the parachute payment less the average annual compensation.

Bond interest exemption revoked

The TCJA repeals the tax-exempt treatment for interest paid on tax-exempt bonds issued to repay another bond in advance. An advance repayment bond is used to pay principal, interest or redemption price on an earlier bond prior to its redemption date.

Be informed

Note that other rules and limits may apply. We can provide you with a detailed picture of the new tax law and explain how it’s likely to affect your organization.

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When your not-for-profit desperately needs a new facility, costly equipment or an endowment, a capital campaign can be the best way to raise funds. But to be successful, a campaign requires strong leadership, extensive planning and dedicated participants.
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If your not-for-profit is struggling financially, you’ve probably already taken steps to cut costs, such as wage freezes and layoffs. But to keep your organization afloat, you may need to come up with more creative ways to generate operating cash flow. Here are five:
(more…)

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Last week, on December 15th , the Joint Committee on Taxation released a conference report on the Tax Cuts and Jobs Act. The House proposal included the repeal of the “qualified tuition reduction” exclusion from income, however the conference report does NOT include any mention of repealing the “Qualified Tuition Reduction” exclusion from income.

If the Tax Cuts and Jobs Act is enacted in its current version, educational institutions and their employees will continue to benefit from the “Qualified Tuition Reduction” exclusion from income.

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However much planning has gone into your special event, it may all be for naught if you can’t find reliable sponsors to foot a large percentage of the expenses involved. To line up businesses and individuals to sponsor your big fundraiser, annual meeting or other event, and retain them once you have their allegiance, be sure to:

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People are naturally inclined to make charitable gifts around the holidays. With the end of the year fast approaching, your not-for-profit should prepare now to take advantage of donors’ generosity. Here are four tips for making the most of the season:
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Not-for-profits that ignore the IRS’s private benefit and private inurement provisions do so at their own peril. These rules prohibit an individual inside or outside a nonprofit from reaping an excess benefit from the organization’s transactions. Violation of such rules can have devastating consequences.
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Preparing your not-for-profit’s annual budget is probably one of the least appealing parts of your job. Here’s how to make the process a little less painful.
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If yours is like most not-for-profit organizations, you depend on a big annual event to raise significant funds or attract new members and supporters. Every facet of your event must be perfect if you’re to reach your goals. But as any experienced event planner can tell you, almost no benefit, gala, meeting or conference goes off without at least a small hitch. And if you’re not prepared for the worst, a big hitch could ruin your fundraiser.
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Term limits for not-for-profit board members can be a double-edged sword. They can allow you to easily let go of unsuccessful board members, but they also can cause you to lose the best sooner than you’d like. Consider some of the issues involved before making a decision.

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What are you doing November 28? If that date doesn’t ring a bell, your not-for-profit probably hasn’t made plans to participate in National Giving Tuesday. But considering the opportunities associated with it, maybe it should.

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When did you last Google your not-for-profit’s name or check to see if your website is among the top search results for relevant terms? Many organizations optimize their sites for search engines when they first launch and never revisit their search engine optimization (SEO) strategy. Unfortunately, this is a recipe for online obscurity.

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What do charitable donors want? The classic answer is: Go ask each one individually. However, research provides some insight into donor motivation that can help your not-for-profit grow its financial support.

Taxing matters
The biennial U.S. Trust® Study of High Net Worth Philanthropy, conducted in partnership with the Indiana University Lilly Family School of Philanthropy, regularly finds that wealthy donors are primarily motivated by philanthropy. The tax benefits of giving were cited by only 18% of respondents in the 2016 survey.
On its own, your organization has little control over tax rates or deductions. But by teaming up with other nonprofits, you can exercise influence over tax policy. For example, groups such as the Charitable Giving Coalition have been credited with helping to defeat congressional challenges to the charitable deduction. Some nonprofits also partner up to influence state legislation on charitable giving incentive caps. Just keep in mind that, to preserve your nonprofit’s tax-exempt status, political lobbying should be kept to a minimum.

Matching opportunity
Other research has found that donors are just as motivated by matching gifts as they are by tax benefits. A joint Australian and American study gave supporters a choice between a tax rebate and a matching donation to charity. Donors were evenly split between the two — but those opting for the match gave more generously than those who took the rebate.
If your nonprofit hasn’t already tried offering matching gifts, it’s worth testing. You’ll need to identify donors willing to use their large gift to incentivize others — reliable supporters such as board members or trustees. Consider using their gifts during short-lived fundraisers, where a “ticking clock” lends the offer greater urgency.
Other strategies can enable donors to stretch their giving dollars. For example, encourage your supporters to give appreciated stock or real estate. As long as the donors meet applicable rules, they can avoid the capital gains tax liability they’d incur if they sold the assets.

Don’t make assumptions
Donors can be motivated by many social, emotional and financial factors. So it’s important not to assume you know how your target audience will respond to certain types of fundraising appeals. Perform some basic research, asking major donors and their advisors about their philanthropic priorities. Contact us for more revenue-boosting ideas.

D&O insurance: Some FAQs for nonprofits

Warning! 4 signs your nonprofit is in financial danger

Don’t let unemployment insurance fleece your nonprofit

When it comes to revenue, nonprofits need to think like auditors

Make the most of your fundraising with simple metrics

Financial sustainability and your nonprofit

Procurement procedures: Is your nonprofit really in compliance?

Accounting for pledges isn’t as simple as it might seem

Should your nonprofit have an advisory board?

4 steps to boosting positive PR for your nonprofit

Make telecommuting work for your nonprofit

Spring cleaning: Review your nonprofit’s programs — and possibly replace some

Is your nonprofit’s board providing adequate fiscal oversight?

It’s time for nonprofits to embrace the cloud

5 questions to ask yourself about social media

Boosting the matching gifts your nonprofit receives

Making the most of your nonprofit’s internal audit function

Is your nonprofit ready to hire new staffers?

Collaborating for a cause: Nonprofit alliances

What nonprofits need to know about the new tax law

How nonprofits can successfully execute a capital campaign

5 strategies for struggling nonprofits

Status of Qualified Tuition Reduction

Finding and keeping event sponsors

How nonprofits can maximize donors’ generosity around the holidays

Why your nonprofit must avoid excess benefit transactions

5 Simple Steps to a Better Nonprofit Budget

Don’t let a crisis KO your nonprofit’s special event – plan ahead

Are Term Limits Right for your Nonprofit’s Board Members?

Use a Giving Day to Raise Money — and Awareness — For Your Nonprofit

Make Sure Your Nonprofit’s SEO Strategy Keeps Pace With the Web

What Really Motivates Nonprofit Donors?