| EXECUTIVE SUMMARY | 
MANY CPA VOLUNTEERS AT NPOs ASSUME state and federal laws protect them from legal liability. However, unpaid workers and board members aren’t protected if an NPO violates federal or state civil rights laws or in instances where sexual offenses occur, for example.
BOARD MEMBERS SHOULD BE CAREFUL about conducting business of any type with the NPO. Even where no actual conflict of interest exists, the appearance of it may lead to charges that board members are improperly receiving personal benefits.
BEFORE AGREEING TO SERVE AS TREASURER a CPA should check the NPO’s accountant or bookkeeper’s qualifications. The organization should have internal controls to ensure financial transactions are handled in a way that minimizes the chance to misappropriate funds.
A CPA SHOULD BE WARY of serving on a board with members who are inattentive to operations, don’t attend meetings or exercise their fiduciary duties without reasonable care. The organization’s bylaws should enable the board to remove any director who doesn’t meet his or her minimum obligations.
AN NPO SHOULD HAVE GUIDELINES in place about how to recruit and retain qualified employees in compliance with all state and federal laws, discipline and dismiss employees as well as enable employees to report problems or potential violations.
AN NPO SHOULD CARRY BOTH a general liability insurance policy and a directors and officers (D&O) policy. A CPA whose employer is pushing him or her into board involvement should ask the employer to provide liability insurance coverage. | | JOAN SOMPAYRAC, CPA, JD, is an assistant professor of accounting at the University of Tennessee at Chattanooga. Sompayrac has been a community volunteer and NPO treasurer. She has contributed articles to Practical Tax Strategies, Tennessee CPA Journal and Employment Labor Law Quarterly. Her e-mail address is Joanie-Sompayrac@utc.edu . | 
ake sure you don’t put yourself on the road to hell when you act on your good intentions. Not-for-profit organizations (NPOs) always need volunteer services, including those only certified public accountants can provide, and at one time or another many civic-minded CPAs accept a request to pitch in. For their unpaid work, they reap modest rewards: Being a volunteer board member can help satisfy a CPA’s desire to support a favorite cause, raise his or her profile in the community, meet people and establish professional contacts as well as learn new skills, for example. The pluses sometimes come with negatives, however. Here are guidelines that will help protect a CPA against legal liabilities when he or she gives time and expertise to an NPO.
BAD THINGS CAN HAPPEN TO GOOD VOLUNTEERS
CPAs often participate in general board stewardship of an NPO or contribute accounting services. In many not-for-profit organizations, a CPA serves as the treasurer. Most volunteer board members assume they face no real risk of major liability, but that isn’t true. Even at the smallest NPO, problems can arise. Board members may have legal responsibility if an employee embezzles money, one of the organization’s staff members or unpaid workers commits an act of sexual misconduct, the entity fails to pay its payroll taxes or someone is injured on its property because of hazardous conditions. | Giving Is Good
In 2001 Accountants for the Public Interest’s 22 affiliates provided nearly 55,000 instances of volunteer CPA services to NPOs and individuals throughout the United States. Source: Accountants for the Public Interest, api36@juno.com .
| | Some board members think they are protected by legislation covering people acting in a volunteer capacity for NPOs. It’s true that most states have laws (Nebraska and Oregon are exceptions) that exempt directors, trustees and members of NPOs from lawsuits arising out of the conduct of day-to-day affairs. But much of that immunity evaporates if the court deems the volunteer’s conduct was “willful, wanton, negligent (or) grossly negligent.” Congress’s attempt to relieve board members from legal liability is the Volunteer Protection Act of 1997 (VPA). Essentially, the VPA exempts volunteer workers of nonprofit organizations and government entities from liability for harm caused by their actions or omissions if 
They act within the scope of their responsibilities.
The volunteers are properly licensed.
The harm wasn’t caused by willful or criminal misconduct, gross negligence, reckless misconduct or conscious, flagrant indifference to the rights or safety of the injured party.
The harm wasn’t caused by the unpaid worker operating a motor vehicle, vessel, aircraft or other vehicle. | The VPA also limits punitive damages if the conduct took place while the volunteer was acting within the scope of his or her responsibilities. Many CPAs who are volunteer board members of NPOs assume the VPA and similar state laws provide sufficient liability coverage for them should something go wrong. This isn’t so. For example, the act doesn’t protect volunteers in situations where they violate federal or state civil rights laws. Thus, if an unpaid worker is charged with discrimination based on race, gender, national origin, religion, disability or age, for example, the VPA is irrelevant. Nor does it protect volunteers in instances where sexual offenses have occurred or when drugs or alcohol are involved.
Second, the federal law does not prevent unpaid workers from being sued by the organization. For example, if an NPO is sued based on the actions of one or more of its volunteers and a judgment is entered against it, the entity may sue the volunteer to recover his or her proportionate share of the financial judgment. While it’s unlikely an NPO would sue in such cases, it is legally possible. Although the VPA appears to offer unpaid workers more protection against personal injury claims than many state laws do, the act’s constitutionality has yet to be tested in the courts. In section 14501(a)(5), Congress states, “Services and goods provided by volunteers and nonprofit organizations would often otherwise be provided by entities that operate in interstate commerce.” In other words, Congress has drawn its authority to regulate volunteer liability from interstate commerce laws. Whether this legal construction will withstand a challenge remains to be seen. SAFEGUARD YOURSELF
Because state and federal laws give unpaid workers an uncertain level of protection, it’s wise to always take the following precautions when you do volunteer work in your community or for a favorite cause. | Dos and Don’ts
If you volunteer CPA services to an NPO, do 
Avoid the appearance of impropriety.
Check the volunteer liability statutes in your state.
Examine the NPO’s internal controls, bylaws and procedures.
Educate yourself about how the organization operates.
Attend board orientation and understand job descriptions.
Attend as many board meetings as you possibly can and document votes and discussions.
Make sure the organization has proper insurance coverage.
Be prepared to contribute time, talent and resources. Your follow-through is important, so don’t
Skip board meetings.
Rubber-stamp decisions.
Sign checks without documentation.
Ignore employee complaints of discrimination or sexual misconduct.
Serve if you are unable to regularly attend meetings. | | Avoid the appearance of impropriety. Board members should be very careful about conducting business of any type with the NPO. Even where no actual conflict of interest exists, the appearance of it in a minor transaction (such as preparing a tax return) may lead to charges that board members are improperly receiving personal benefits. Such a situation can be enough to harm the organization or its board members’ credibility. Educate yourself about how the organization operates. Volunteers should learn where the organization gets its funds and how it operates from day to day. Ask the staff and board for
A complete list of revenue sources, including grants and planned giving.
A description of how the organization approves and documents purchases.
Copies of prior year audits. If the NPO is just starting up, the CPA volunteer is in an ideal position to help it create a sound system of financial procedures and develop other operational guidelines, says Rosemary Hutchinson, CPA, Hidden Valley, Pennsylvania. Examine internal controls. If an NPO wants you to serve as treasurer, ask about the on-site accountant/bookkeeper’s qualifications and find out whether he or she works with the guidance of a CPA. The organization should have internal controls to ensure staff people handle financial transactions in a consistent manner that minimizes any opportunity to misappropriate funds. | Volunteer and Social Responsibility Resources For information about local volunteer opportunities, contact your state society or look up local offices of Corporation for National Service, Red Cross, Salvation Army and many other social responsibility programs on the Internet. Also contact
The Clearinghouse for Volunteer Accounting Services
www.cvas-usa.org
Matches organizations in need of accounting services to CPAs who volunteer their services. Includes volunteer opportunities, FAQs and resource links.
CPAs for the Public Interest (Illinois only)
www.cpaspi.org
Site links pro bono volunteer professionals with financial, tax, technical, accounting and management expertise to community service projects and NPO organizations.
Center for Nonprofit Resources (Ohio only)
www.cnrohio.org
Its mission is to strengthen and sustain the NPO sector.
Nonprofit Risk Management Center
www.nonprofitrisk.org
Helps nonprofit staff and volunteers control risks so they can focus on their missions. Publications, newsletter, consulting services and telephone support help. To learn more about the benefits of social responsibility programs, visit this Web site:
Business for Social Responsibility
www.bsr.org
A global nonprofit organization that helps member companies achieve commercial success in ways that respect ethical values, people, communities and the environment. For information on how to research NPOs, visit
Charity Navigator
www.charitynavigator.org
A free resource for in-depth, objective analysis of the financial health of more than 1,700 of America’s largest charities. Source: Christine Pardi, Robert Half Management Resources, Christine.Pardi@rhi.com . | | Anne Wilkins, CPA, Chattanooga, Tennessee, says, “Make sure the organization has annual audits and find out who performs them.” Talk to the firm that does them to learn whether the NPO’s financial policies and procedures are sound, she says. Look for internal controls such as
Segregated duties (one person logs in contributions, another writes checks).
Separated purchase order preparation and approval and receipt/payment functions.
Verified custody of assets and related security.
Prenumbered checks for all disbursements (other than petty cash); checks larger than a certain amount get two signatures.
Proper documentation for every transaction, even very small ones. Being treasurer of an NPO probably takes more time than other positions do, but it shouldn’t be a burden. It could be if whoever handles the money is not skilled. The less this person knows, the greater your oversight responsibility will be for gathering, organizing and presenting reliable financial information to the board. Inquire about the staff person’s qualifications when you’re finding out about internal controls. If you don’t have confidence in the employees handling the money and financial reports, don’t take the job. Examine the organization’s bylaws. Besides looking at internal controls, get answers to detailed questions about the NPO’s bylaws and articles of incorporation, advises Linda Christiansen, CPA, New Albany, Indiana. She asks board members how active they are, whether attendance at meetings is required, how much financial and other information directors get to hear at meetings and whether they can speak with employees to get input for making decisions. Examine the organization’s fiduciary policies and procedures. Many NPOs have written policies and procedures on file, but some neglect to develop these, leaving officers and directors unprepared for unforeseen situations. For example, one NPO was thrown into confusion by a large, unexpected bequest because it didn’t have a deferred gift plan or procedures to handle it. The director called the organization’s president and treasurer to discuss what to do. They batted around ideas and presented them to the executive committee and then to the full board of directors. Eventually, the NPO decided to put the gift and future unrestricted bequests into an endowment fund, but it caused unnecessary stress and the delay cost the organization money. | Examine the organization’s personnel procedures. An NPO that doesn’t have policies and procedures for handling its money may be inefficient about meeting workplace requirements, too. To avoid potential problems, check the NPO’s human resources manual to see if it has guidelines in place about how to
Recruit and retain qualified employees in compliance with all state and federal laws.
Discipline and dismiss employees.
Enable employees to report incidences of fraud, sexual harassment, discrimination, safety problems or other potential violations of state or federal law. Attend board orientation and understand director responsibilities. Nonprofit organizations must provide job descriptions for board members and officers so each will know what he or she is expected to contribute in terms of time, tasks and financial commitment. The NPO should provide orientation and continuing education sessions for directors to ensure they understand the mission of the organization, board responsibilities and the rules and regulations that apply to them and to the entity. Hutchinson of Pennsylvania says she often invites a volunteer attorney to come and talk with board members about their fiduciary duties. It offers them a chance to ask questions about the potential for liability. Have proper insurance coverage. Christiansen says: “Make sure the organization you are volunteering services to protects you with a liability insurance policy. Check the type of coverage and the amount.” Look for directors and officers (D&O) insurance, which covers an assortment of claims arising from allegations of harm resulting from management actions. Ideally, an organization should carry both a general liability insurance policy and a D&O policy. Each board member should check whether his or her homeowner’s insurance covers NPO board liability. If it doesn’t, consider adding a rider to your policy. If an employer is pushing you into board involvement, ask your employer to provide liability insurance coverage. Attend board meetings and document votes and discussions. When you serve on the board of directors for an NPO, you agree to act in a fiduciary capacity as a steward for the organization. If, as a board member, you don’t attend meetings or get adequate documentation before authorizing expenditures, you may be engaging in “wanton” or “negligent” behavior as defined by the law. If, as treasurer, you cosign checks without verifying the expenditures, you are failing to fulfill your fiduciary duty to safeguard the funds of the organization—even if you truly believe the employees of the organization are trustworthy and honest. Be prepared to contribute more than your time. Chattanooga, Tennessee-based Joseph F. Decosimo, CPA, has served on the boards of many not-for-profits for various causes over the past four decades. He has never had to face the issue of legal liability for his volunteer work, but he acknowledges there is risk. He and other board members at times have given their own money to help support an organization during a period of financial instability, which is not uncommon in that community. Decosimo says directors should make a financial commitment to an NPO as well as a time commitment. If a board member doesn’t have money to contribute to an organization, he or she can help with fund-raising activities, he says. Clearly, being a member of an NPO board or performing other unpaid services for a not-for-profit organization can cause fiduciary volunteers to incur a range of risks. Nonetheless, CPAs have a long tradition of community service, and many feel an obligation to continue this legacy. We owe it to ourselves, our profession and our communities to learn about the potential pitfalls and to make every effort to mitigate them so we can continue to ably serve.
CASE STUDY
Beginner’s Luck I once served as treasurer for a local NPO with an annual budget of about $400,000. It was my first time in such a role for any board, and I was naive about what my responsibilities were. Within a few weeks of becoming treasurer, I got a call from the organization’s independent auditors asking me to come by to discuss the annual audit. The meeting revealed that in the prior year, the NPO’s CEO and program manager had incurred about $50,000 in undocumented “travel” expenditures, which had been charged to a credit card obtained in the NPO’s name. The bookkeeper customarily had presented checks to the previous treasurer for signature, unaccompanied by the monthly credit card bill. The treasurer had signed the checks anyway, paying the expenditures, and the organization had kept no documentation. I had a fiduciary obligation to investigate the problem, so I called the credit card company and obtained copies of the previous year’s bills. They revealed an interesting scenario. The CEO, the program manager and the bookkeeper all had used the agency credit card to pay for personal travel, retail purchases (including several thousand dollars for lingerie), personal car repairs, parties on riverboats, long-term car rentals and personal entertainment. During most months, three payments went to the credit card company for the account. One of the trio would write a personal check for a small sum, perhaps $10, as token coverage of personal expenses. Then, the bookkeeper would write an agency check for another, larger amount that the treasurer would sign. In addition, the director—using agency funds he had steered into a secret bank account requiring his signature only—made an additional, considerably larger monthly payment. As an inexperienced treasurer, I felt ill prepared to get my arms around the gaping holes in the lax system of internal controls that had let this happen. There was no segregation of duties, which often is a problem at small NPOs. The person who opened the mail also wrote receipts for donations, made out deposit slips, delivered the deposits, cut checks and performed bank reconciliations. The organization also had no system in place to control purchases, verify receipt of items or approve payment vouchers. It was a recipe for disaster. I presented my findings to the executive committee of the NPO’s board of directors. At first, some members balked about taking action. They considered it politically inexpedient to confront the three employees about the irregularities. When I told them the director had let the officers and directors’ liability coverage lapse, however, they sensed the gravity of our dilemma. The vice-chairperson of the executive committee and I met with the director. We informed him about what we’d found out and gave him two weeks to provide documentation that the group’s expenses had been agency-related. No one was able to substantiate that the charges had been made for agency business, and the board asked all three to resign. I never learned how much money the NPO lost. My best estimate is that it was about $100,000—approximately 25% of its annual budget at the time. After numerous depositions, discovery of other illicit credit cards, a bonding company investigation and discussions with creditors, the bonding company reimbursed the agency for a portion of the squandered funds. The ousted CEO anted up a nominal amount as well. Despite those recoveries, the agency was damaged and the board members were shaken. They were concerned that if crooks could misappropriate public monies because of their inattention, they had little or no statutory liability protection. The experience taught me a vivid lesson about what to examine before accepting a position on the board of directors for an NPO. Today, I would meet and talk with the staff, the NPO’s board members and the organization’s auditors and would make my decision only after getting a clean financial bill of health. | |
