Nonprofits can be sued over a wide range of claims, just like their for-profit counterparts. In fact, Insurance Journal reports that directors and officers liability claims occur twice as often in nonprofits compared to private companies.
The increase in lawsuits could stem from a number of possible issues.
- Nonprofits may be so focused on their cause that they neglect other issues.
- Nonprofits may incorrectly believe their nonprofit status makes them an unlikely target.
- Individuals serving on nonprofits may be busy with other duties, and they may be working outside their normal sphere.
- Donors often have high expectations for how funds are managed.
- Nonprofits often work with vulnerable populations.
- Volunteers may not be screened properly.
Regardless of the cause, nonprofits get sued – a lot. When this happens, the nonprofit’s financial stability and reputation can be put in jeopardy.
Nonprofits depend on their reputation.
Reputation is important to all corporations, but this is especially true in the case of nonprofits. As Risk & Insurance explains, nonprofits depend on their reputations to secure grants and donations.
Many things can damage a nonprofit’s reputation, from claims of mismanaged funds to inappropriate actions of volunteers. Some threats may come from outside. For example, cyber attacks that reveal personal data could damage a nonprofit’s reputation. Fundraising fraud, described in Risk & Insurance as people who impersonate nonprofits to elicit and steal donations, is another worrisome threat.