How to protect your organization’s officers, directors

Don’t overlook exposures that could put your organization and your board of directors at risk. Your board of directors is critical to your nonprofit’s operation and finances. Allegations of mismanagement, misuse of funds, wrongful termination and employee discrimination can put the personal assets of your directors and officers at risk.

Like any other exposure, your nonprofit can put controls in place to prevent and manage this risk. Control activities are in the best interest of service to your clients, which is the ultimate goal of your organization.

Director and officer wrongful acts are often not fully recognized or appreciated. Listed below are wrongful acts that your organization should be aware of:

Wrongful Financial Acts

•    Poor or unauthorized loans or investments

•    Failure to obtain competitive bids on significant purchases

•    Misleading statements of financial condition of organization

•    Use of deceptive practices to solicit contributions

•    Use of charitable contributions for other than the stated purpose

•    Excessive benefits given to directors or officers

•    Unreasonable accumulation of funds over and above those needed for capital expansion or reserves

•    Co-mingling of funds with those of an individual or another organization

•    Negligence in handling funds, controlling tax liabilities or maintaining financial records

•    Conflict of interest

Wrongful Operational Acts

•    Acting with undue authority

•    Failure to regularly attend board meetings

•    Irresponsible administration or management

•    Libel

•    Slander

•    Defamation of character

•    Invasion of privacy

•    Plagiarism

•    Unfair hiring and termination procedures

•    Unacceptable treatment of volunteers, staff or beneficiaries

•    Misleading or false statements on solicitation materials

•    Violation of governmental law or regulations

•    Failure to conduct services according to volunteer standards that call for accreditation

Organizations can buy Directors and Officers Insurance coverage on behalf of their board to indemnify them against these types of claims. Nonprofits may also need this coverage to recruit valuable volunteer board members and executives. Directors and Officers insurance can provide added protection against those liabilities that organizations can’t indemnify under state laws.

The Hawaii Alliance of Nonprofit Organizations has partnered with Hawaii Insurance Consultants to provide member organizations high quality Directors and Officers insurance at competitive rates. The HANO D&O Protection Program provides exclusive coverage at a preferred premium, coverage not available to Hawaii nonprofits that are not members of HANO. Click here to find out more.