| 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
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
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
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
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
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
Accountants for the Public Interest,
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.”
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
They act within the scope of their
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
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.
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
Dos and Don’ts
you volunteer CPA services to an NPO, do
Avoid the appearance of
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,
Skip board meetings.
Sign checks without
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
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
Matches organizations in need of
accounting services to CPAs who
volunteer their services. Includes
volunteer opportunities, FAQs and
CPAs for the Public
Interest (Illinois only)
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)
Its mission is to strengthen and
sustain the NPO sector.
Nonprofit Risk Management
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
A global nonprofit organization
that helps member companies achieve
commercial success in ways that respect
ethical values, people, communities and
information on how to research NPOs,
A free resource for in-depth,
objective analysis of the financial
health of more than 1,700 of America’s
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
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.
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
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
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 |
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
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
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.
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
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.
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.
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.
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