Nonprofit Risk Factors

Topics: Small Business

Summary: Nonprofits are essential components of the U.S. economy. They face unique challenges that could compromise their organizations, such as theft of funds, volunteer injury and fundraising fraud. Find out how to mitigate nonprofit risks by having nonprofit insurance coverage and other prevention measures.


Nonprofit Risk Factors

Nonprofit organizations are known for helping those in need and giving back to their communities. A nonprofit serves the public by offering goods, services or a combination of the two to further a social cause and benefit the public. Over 1.54 million nonprofits in the United States contribute nearly a trillion dollars to the U.S. economy.

Unique Nonprofit Risks

Nonprofits face specific risks that set them apart from other small businesses. Financial instability, damaged reputations, data breaches, unknown and untrained volunteer staff and board member liability are just some of the top concerns for nonprofit institutions. Specific nonprofit risks include:

Theft of Funds

Nonprofits organizations can be at a higher risk of theft from employees, clients and third-party vendors. For nonprofits with limited resources and tight budgets, any type of lost resources can directly impact the organization’s day-to-day services or overall mission.

Fundraising Fraud

Nonprofit organizations can be a prime target for scammers who impersonate their nonprofit to fundraise and keep the profits for themselves. These fraudsters use a nonprofit’s brand or logo to create a fake event and steal the money intended for the nonprofit, risking the actual organization’s reputation, donors’ trust and future donations.

Reputational Damage

Nonprofits rely heavily on the public’s perception and the goodwill of others to fund their work. If they lose the confidence of their donors, it can cause a decrease in grants and public donations and ultimately result in a decline in their services.

Directors and Officers Liability

A nonprofit’s board of directors and officers are in charge of following the organization's mission, managing funds and maintaining the day-to-day expenses. However, directors and officers can also take on personal risks associated with their duties at the organization. They could be held personally responsible for claims of wrongful termination, harassment or misallocation of funds.

Volunteer Staff

Volunteers are the life-blood for nonprofit organizations, but they also can bring additional risk. Nonprofits could be negligent if a volunteer causes damage or even steals from an institute. Organizations could be held liable if a volunteer is injured at the office or event site.

Donor Data Breaches

If a nonprofit processes online donations, e-commerce or event registrations, or stores employee and donor information online, it could be a potential target of a cyber attack. A nonprofit data breach that exposes a donor’s personal and financial details would be highly costly to any organization, but more so for a nonprofit organization. The State of Nonprofit Cybersecurity report found that at least 39% of nonprofits did not have a data breach policy in place.

Special Events

Special events, such as bake sales, walk-a-thons, community fairs and 5Ks are just a few fundraising activities for nonprofit organizations. Without proper planning and training, these activities can present safety, property, reputational and liability risks to nonprofits.

Nonprofit Workers’ Compensation Risks

Volunteers and employees at nonprofits are vulnerable to the same workplace risks as for-profit workers including overexertion, slip and fall injuries, transportation incidents, lacerations or burns. The main difference is that volunteers, often a major resource for nonprofit organizations, are not paid employees, but they can bring just as many workers’ compensation risks to an organization.

Employment Issues

Nonprofit organizations can have a higher risk for employment issues, such as wrongful termination, unfair hiring practices, sexual harassment or discrimination. The costs of an employee lawsuit can be devastating to a nonprofit’s reputation, productivity and staff morale. Plus, defending and settling a case could cost the organization thousands of dollars.

Managing Risks for Nonprofit Organizations

Nonprofit institutes rely on a positive reputation and a strong donor base. If any of the risks listed above occur, a nonprofit could be in extreme distress and face the possibility of closure. Nonprofits should protect their organization by having the proper nonprofit business insurance and take the following steps to help mitigate their unique risks:
  • Funding Theft Prevention: Nonprofits operate on tight donation-based budgets. It is a daily battle for them to stay within that budget while also considering overhead costs such as rent, salaries and utilities. Nonprofits are at risk for funding fraud, which could cripple their organizations. It’s imperative that they protect their brand and reputation, prosecute fraudsters and prevent future incidents.
  • Volunteers: Nonprofit organizations should have the correct volunteer insurance coverage, including general liability and workers’ compensation, to cover potential volunteer injuries and other risks. However, in some states, workers’ compensation insurance does not cover volunteers, so each organization should check its state laws.
  • Cybersecurity: Data breaches are a genuine concern for nonprofit organizations. Nonprofits need to have a cybersecurity plan and understand how to prepare for cyber attacks to protect the donor and the organization’s financial information. Nonprofit risk management plans should include cyber liability insurance, which can assist an organization with the costs if they are a victim of a cyber attack.
  • Special Events: Nonprofit special events need to be thoroughly planned to keep within their tight budgets. Volunteers also need to be trained in emergency preparedness and safety procedures to mitigate risks.
  • Workers’ Compensation: Organizations must have workers’ compensation coverage for both employees and volunteers. However, some states recognize volunteers as employees and others do not. Nonprofit organizations should work with an insurance agent or carrier that understands the nuisances and can recommend workers’ compensation insurance when it is needed.

Nonprofit Insurance Options

Nonprofit organizations should consider many types of insurance coverage that protects them from a variety of losses, including:
  • General Liability
  • Commercial Property
  • Professional Liability
  • Automobile
  • Directors and Officers Liability
  • Workers’ Compensation

AmTrust Helps Nonprofit Organizations

From funding critical research and feeding the less fortunate to working with children and protecting our natural resources, nonprofits have vital missions.

Since each nonprofit organization has different risks, AmTrust Financial tailors its coverage to address the most common exposures of each organization. Our plans help protect nonprofit directors, officers and managers against exposures ranging from fiduciary malfeasance to wrongful termination claims. We also provide workers’ compensation coverage for many nonprofit insureds.

Management Liability Policies

A nonprofit management liability policy helps ensure an organization is covered by a variety of lawsuits. For example, nonprofit board members may be less familiar with running an organization than officers in for-profit businesses, potentially opening them up to certain liabilities. Nonprofits can also face negligence claims, fundraising issues, sexual harassment claims against a board member and more. Nonprofit management liability policy includes the following coverages:
  • Directors & Officers (D&O) Liability
  • Employment Practices Liability (EPL)
  • Fiduciary Liability
  • Network Security and Privacy Liability (Cyber)



AmTrust Financial Works With Nonprofit Organizations

AmTrust Financial provides all lines of insurance coverage specifically tailored to the needs of nonprofit organizations. For more information about our nonprofit insurance, please contact us today.

This material is for informational purposes only and is not legal or business advice. Neither AmTrust Financial Services, Inc. nor any of its subsidiaries or affiliates represents or warrants that the information contained herein is appropriate or suitable for any specific business or legal purpose. Readers seeking resolution of specific questions should consult their business and/or legal advisors. Coverages may vary by location. Contact your local RSM for more information.
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