Board of Directors of Hawaii Nonprofit Organizations: Common Issues?

Over the years we have more frequently been asked to join the Board of Directors of various Hawaii nonprofit organizations. Each time we served we have spotted common issues in each organization which should be addressed and they are:

• Lack of Board Policies. All Hawaii nonprofit organizations should have Board Policies covering conflicts of interest, travel and other reimbursement, record retention and whistleblower procedures. These internal policies describe how the Board of Directors should handle each issue. In addition, policies should be adopted regarding board compensation (salaries or stipends) and gift acceptance policies (gifts from individuals, corporations, foundations, etc.).
• Lack of Proper Hawaii Insurance. Many Hawaii nonprofits do not have proper insurance policies in place, other than what is required by Hawaii law such as Workers’ Compensation Insurance and Temporary Disability Insurance. At most those entities only have General Liability Insurance which covers basic premises liability. However, they should also probably have an Umbrella Policy, Employment Practices Liability Insurance, as well as Directors and Officers Insurance. It is the Directors and Officers Insurance which should be carefully reviewed to ensure what the Directors actually do for the Hawaii nonprofit are covered by the policy. Besides not having the proper insurance, Board members need assurances that the existing policies will remain in place after the Directors step down as most Directors and Officers Insurance are “claims-made” policies. Thus, they only cover claims made during the policy term. They do not pay for claims made outside the policy term. Contrast the “claims-made” policies with “occurrence” policies which look at the date of the accident or occurrence, and so as long as the policy was active when the accident occurred the insurer should have to defend the policy holder.
• Lack of Corporate Formalities. Most Hawaii nonprofits do not pay enough attention to corporate formalities. The minutes are not kept, the documents are not properly signed, the bank accounts are not properly set up. Some surprisingly do not even know that they are not corporations and instead are just informal associations which possibly expose everyone to personal liability and tax problems.
• Lack of Tax Exempt Knowledge. Many Hawaii nonprofits not only governed by the Hawaii Nonprofit Corporation Act, but are also federally tax-exempt corporations under the Internal Revenue Code. If the organization is tax-exempt, the Hawaii Directors should be very familiar with the numerous requirements promulgated by the Internal Revenue Service, especially as some provisions such as “private inurement” and “private benefit” may not only jeopardize the tax-exempt status, they may also impose personal liability on the Director.

As you can see from our personal experiences of serving on various Hawaii nonprofit Boards there are a lot of issues for Directors of those entities to address. Contact us today to get our experienced assistance in improving your Hawaii nonprofit.