What Charity and Not-For-Profit Board members need to know about Risk and Insurance
Charities have a hard time recruiting volunteers and board members. There are lots of possible reasons, but I think a big one is because people are scared.
Like many community-minded people, I have volunteered a lot and served on many Boards. I am currently Chair of one of the largest and oldest Charities in Canada. In many of my board roles I have taken a lead on governance; crafting or revising bylaws, examining board and staff roles looking for areas of improvement, looking at potential risks to the organizations and finding solutions, exploring the various board and volunteer fiduciary responsibilities and generally looking for ways to better govern the organizations for better success.
With over 30 years experience, I have made several observations that I’d like to share.
- Organizations are having a harder time finding volunteers and board members because people seem less willing to volunteer than they used to be.
- The knowledge level of board members about governance and their responsibilities varies greatly.
- Our culture has become more litigious which has resulted in a great deal more formality and rigidity around board practices.
- People are becoming more risk adverse and appear less willing to take chances, especially in volunteer positions.
- Volunteer Board members seem to be taking their roles more seriously and want to learn how to do it better.
- Board members generally don’t know what risks they take on nor how to protect themselves.
Medium to Large Organizations
Having been a professional risk manager, and insurance expert here are some tips that I have learned that help me make the decision whether to go on a board, and how to perform my duty to protect the organization, while protecting myself at the same time.
- Does the organization have current Bylaws that include Indemnification provisions for Directors?
- Does the organization carry Directors and Officers Insurance (D&O)? Make sure it’s renewed annually. Other insurance may be appropriate as well depending on the operations.
- Does the organization meet its ongoing obligations to file its annual returns for taxation and to maintain its charitable status? Make sure the Executive Director or head staff person (if applicable) report to the board on this annually. Also make sure monthly remittances to CRA are made.
- Does the organization have externally prepared financial statements prepared annually? Make sure they are the type required in your bylaws and by any financial institutions or other stakeholders that require financials, i.e. Notice to Reader, review Engagement, or Audit.
- Are Directors required by the Bylaws, and do they in practice, declare conflicts of interest?
- Are Directors given an orientation to the organization and informed of their fiduciary responsibilities upon joining the board?
- Are you familiar with all of the operations of the organization and do you feel that you have the right skills and knowledge to perform your duties faithfully?
- Make sure fundraising activities are within provincial and federal laws and regulations.
- Who has the authority to enter into legal agreements and make financial commitments on behalf of the organization? Is Board approval required? Are there appropriate checks and balances in place?
- Come to meetings prepared and having read all of the materials including financials. Ask questions, and make sure you are satisfied with the answers.
Smaller organizations may not do all of this, and that’s no reason not to join. Just go in with your eyes open, ask lots of questions, and satisfy yourself about the risks. Here are some things that very small not-for-profit volunteers or board members can do to protect themselves and the organization:
- Make sure you familiarize yourself with the operations.
- Make sure you understand and are comfortable with how any money is handled. Know who handles it and what oversight is in place.
- There may be very inexpensive Insurance available for very small organizations.
- There may be some insurance coverage available on your personal insurance to cover your role as a director. If not ask about a personal umbrella or individual D&O policy.
- If it’s not an incorporated or formal organization, special events insurance may be available for one-off events.
- Make sure appropriate licenses and permits are obtained for fundraising activities.
- If you aren’t comfortable with something or want more information; say so.
There are a lot of good causes out there and they all need good volunteers and board members. Don’t be discouraged by fear, or by having to work to help them improve their governance practices. You can play a very important role in making that organization better, and making a valuable contribution to its cause.
There’s lot’s of help out there. We can help too. Optimized Insurance not only specializes in insurance for not-for-profits and charities, we also work with you to help you be a better organization. Ask us how.