Do you need insurance on your officers?
July 28, 2010
In my article, Insurance for Homeschol Groups , I discussed several types of insurance a homeschool organization might need. One type is called Director and Officers Insurance, or D&O insurance.
D&O insurance provides defense for leaders if they are sued for wrongful acts in their capacity as leaders. Typical lawsuits against a nonprofit organization include mismanagement of assets and improper employment practices such as discrimination, wrongful termination, and harassment. Many small homeschool organization find that D&O insurance can be very expensive and sometimes forgo purchasing a policy.
But could that be harmful to your organization or leaders?
Since writing that article, I have found an excellent explanation of D&O insurance for nonprofit organizations written by the Nonprofit Coordinating Committee of New York. You may read the entire article here.
Here is a helpful excerpt:
Unlike general liability insurance — which any organization that has a physical plant would be foolish not to have — many nonprofits are uncertain whether they need D&O coverage. When a person becomes a board member of a nonprofit organization, she assumes a level of responsibility for the organization (“duty of care”), and exposes herself to claims for not running and managing it in a proper way. Whether or not your organization needs D&O insurance depends on what the likelihood is that one of your board members will be the target of such a claim.
Claims generally fall into two categories: bodily injury (physical harm) and non-bodily injury (non-physical harm, like discrimination or termination). The majority of claims are for bodily injury. Your general liability insurance covers board members, subject to policy terms and conditions, for claims arising out of bodily injury and property damage.
Directors & Officers liability insurance only covers non-bodily injury claims. Non-bodily claims include employment-related claims and mismanagement of funds.
Fear of non-bodily injury lawsuits would be one reason to have D&O insurance. Although there are very few reported cases, it doesn’t mean that claims have not been filed and then either settled out of court or dropped.
Generally, there are two types of lawsuits in which a claim might be brought against a board member: derivative lawsuits and direct or third-party lawsuits.
Derivative lawsuits are claims against a board member on behalf of the corporation. The typical claim here would be mismanagement of assets. But, under New York State law only a few people have “standing” or the right to bring such claims. They are: 1) board member(s) suing other board member(s) 2) members of an organization suing a board (if at least 5% of the total membership join the lawsuit), and 3) the state Attorney General.
Because of these restrictive standing rules, very few derivative claims are ever made. It should be noted that claims of these types are not made for awards to an individual, but rather to make the corporation “whole.”
Direct or third-party lawsuits are brought by an employee or by a person not connected with the corporation who asserts a claim against it or its board on account of some non-bodily injury.
Employment practices like termination and discrimination are the largest exposure in these types of claims. If you have a small, friendly staff, and feel unlikely to have employment claims resulting in a lawsuit, you might not think it necessary to carry D&O insurance. However, when employees feel they have been wronged and are angry, they may file a claim even if it is baseless. At that point, you will have to hire lawyers. Your D&O then becomes a legal defense policy.
Indeed, Swords’ view is that D&O insurance is essentially legal defense insurance, noting that “99.99% of the cases brought against a board are going to be thrown out, but you’re still going to have to pay the legal fees if a claim is filed.”
In this connection, the “deep pocket” theory is relevant. This theory holds that only people with money are likely to be sued. Lawyers may file a suit based on a bogus claim against “deep pocket” board members with the hope of securing a settlement for their client. Organizations that have a board made up of “ordinary” people who aren’t known to have vast amounts of money may then be comfortable without D&O insurance.
I think their explanation of D&O insurance being “legal defense insurance” is very understandable. They also point out that most of the lawsuits filed against nonprofits are related to employees. If your homeschool organization does not hire employees (and most do not), your risk is low and D&O insurance may not be necessary.
Carol Topp, CPA
Homeschool co-op teachers influence the future!
July 24, 2010
So many wonderful people have influenced my daughters by teaching at our homeschool co-op. I will be forever grateful to them!
When Amy Puetz announced she was looking for stories form homeschool graduates, I asked my daughter, Emily, to write something.
Here is an excerpt:
When I was in fifth grade, my mother enrolled me in a homeschool co-op because she thought it would be “good for me.” Unfortunately, I was less than enthusiastic about the prospect of trying something new and facing “real teachers.” In hindsight, however, I can see that the co-op was one of the greatest blessings of those years of homeschooling!
The volunteer instructor for my public speaking class was a veteran homeschool mother, Mrs. Hill. In her class, I learned how to follow a syllabus, complete weekly assignments, and learn from a teacher other than my own parents. I also benefited from Mrs. Hill’s patient encouragement and instruction, as she shared her passion for communicating for Christ with my class. Because each of my co-op teachers led a class in her area of expertise, their passion developed my love for learning beyond what I would have experienced working with just my mom and sister at home. Although I did not particularly enjoy speaking in public, I appreciated Mrs. Hill’s encouragement. Specifically, her praise—from a source other than my parents—reinforced my self confidence and motivated me to work diligently even in my least favorite subjects. On the car ride home from co-op, I would frequently say to my mother, “Guess what I learned from Mrs. Hill today!” The co-op provided a unique opportunity to learn from other adults, without sacrificing the integral element of family from my homeschool experience.
Read my daughter’s thank you to co-op teachers in Thank You! 20 Homeschool Grads Tip Their Hats to Homeschooling Parents Compiled by Amy Puetz
Amy is offering this as a fee ebook at her website.
If you as a homeschool parent, leader or co-op teacher need a bit of encouragement, read Amy’s Thank You book. It will be the “shot in the arm” you need!
Thank You! 20 Homeschool Grads Tip Their Hats to Homeschooling Parents
Audits for small nonprofits are rarely needed
July 20, 2010
Dear Carol:
Our organization was organized last year. It is a non-profit group that was designed to offer homeschool sports to our local homeschool athletes.
In January we received our 501c3 status as a non-profit group. It is time for our annual audit, but I am not sure which way to go now and who to get to do the audit.
I used an excel spreadsheet to do our check register.
Any help or suggestions that you could offer would be greatly appreciated.
Sincerely,
Nikki D
Nikki,
Congratulations on obtaining your 501c3 status. that’s a huge accomplishment!
I’d be happy to help you in any way that I can. You mentioned your “annual audit.” Does your organization really need an annual audit? An audit has a specific meaning in accounting and it involves an in-depth look at your entire accounting operation. It is very time consuming and expensive ($3,000 and up). Since you said that you keep your records on an Excel spreadsheet, I assume that the record keeping is pretty simple. So, that makes me wonder if you mean an “audit” or something else, like just filing your annual information return with the IRS.
Carol Topp, CPA
Follow up: Nikki sent me the bylaws for her organization and I made some recommended changes, gave her some financial practices to follow and suggested she consider doing an internal audit.
Some small nonprofits and churches do an internal audit annually or every other year. An internal audit goes beyond the financial practices I recommended, but it is not as extensive as a full audit. Internal audits are performed by people within the organization. They check accounting records for compliance with the financial practices.
The following website explains internal audits for small churches and nonprofits:
http://www.freechurchaccounting.com/churchaudit.html
It also contains a checklist for conducting an internal audit:
http://www.freechurchaccounting.com/support-files/internalauditchecklistguidelines.pdf
Homeschool Co-ops now avaliable at Rainbow Resource
July 16, 2010
I am pleased to announce that Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out is now available at Rainbow Resource, the largest homeschool catalog I have ever seen, with 1300+ pages! I love that catalog. I spend hours looking through it. I am honored to now be included in its pages!
Rainbow price $11.75
Order here
Read more about Homeschool Co-ops here.
(P.S. if you prefer an electronic version of Homeschool Co-ops, I have a special going on through the end of July. Buy the electronic version of Homeschool Co-ops for $10.00 and receive a copy of my 60 page ebook Questions and Answers for Homeschool Leaders. Learn more here.)
Carol Topp, CPA
IRS delays Cyber Assistant (again)
July 16, 2010
On May 7, 2010 the IRS announced it would be delaying the release of the on-line program Cyber Assistant. This long-promised software will allow charitable organizations (including homeschool organizations) to file for 501c3 tax exempt status on-line. The IRS had previously announced that the filing fee would be lowered from $400 (or $850 depending on the organizations annual revenues) to $200 for organizations that filed using Cyber Assistant.
I had several homeschool organizations that were hoping to save $200-$650 by using the on-line filing option. Unfortunately, it won’t happen in 2010. When will the on-ling filing option be available? No telling. The IRS is not offering a new timeline.
What should your group do now if they want to apply for 501c3 tax exempt status?
Sandy Deja of 501c3Book.org has some good advice (emphasis added by me):
A 501(c)(3) has until the end of the 27th month after it is created to file its exemption application. If your organization is closing in on the end of its 27 month grace period, you should not wait for the Cyber 1023. Avoiding the hassles of missing the 27 month deadline is definitely worth the extra money.
Delayed 501(c)(3) Benefits
501(c)(3) status offers a number of benefits other than exemption from Federal income tax: deductibility for contributions, bulk mailing permits, state, local and property tax exemptions, and eligibility for foundation grants, to name a few. Only you can weigh the $650 discount against the costs of postponing these valuable benefits for your group.Reputation
In some cases, lost benefits can be recouped once the IRS recognizes 501(c)(3) status. There is one benefit, though, that once lost may be gone forever: your non-profit’s reputation. If you think there is any chance your organization will be in the news sometime soon, don’t wait for the Cyber 1023. Savvy journalists check the IRS website when writing articles about local charities. A news story pointing out that your group has not yet taken care of its IRS paperwork can do lasting damage.
So, in summary, take a look at the date you incorporated as a nonprofit within your state. If you are getting close to the 27 month window, your organization should file for 501c3 tax exempt status now and not wait for the IRS to offer their lower fee by filing through Cyber Assistant.
I can help with your 501c3 tax exempt application. See my Services page for details.
Carol Topp, CPA
Hosting a booth at county fair makes history
July 14, 2010
The San Diego Christian Homeschools hosted an information booth at the San Diego county fair. It was the first time in the fair’s history that a homeschool organization had been featured there.
Leader Lisa Vaca, wrote to tell me about it:
I just wanted to share with you about how blessed we were to be able to host a homeschool information booth at our County fair yesterday. This all happened thanks, in part, to the encouragement and tips of you, Kristen and Denise (of HomeschoolGroupLeader.com) , and thanks to the huge help of Carol with our non-profit filing last year. (You’re very welcome!)
Our booth was a big hit and the organizers of the non-profit booths at our County fair are begging us to return again next summer. We were able to get HSLDA and other homeschool organizations to send us brochures and publications to hand out, plus we got some of our SDCH kids involved in the photography and displays.
Through this Homeschool Info Booth we were able to introduce homeschooling to our community in a fun, new and positive way, and answer the public’s many questions about home education.
Isn’t that a great idea? The San Diego Christians are reaching out to others in their community to share the benefits of homeschooling.
Carol Topp, CPA
P.S. The San Diego Christian Homeschoolers obtained 501c3 tax exempt status (with my help) which gives them extra credibility in the eyes of their community. Learn the benefits of 501c3 tax exempt status for your homeschool group in this article Do we need 501c3 status?
Homeschool Co-ops now available as an ebook!
July 6, 2010
My book, Homeschool Co-ops: has been available in print since 2008. It has been helpful resource for many homeschool leaders, as Dawn in Janesville, WI wrote me:
I am the director of a 40+ family homeschool co-op. We have already purchased one book, and I read it in a weekend. It has been an awesome resource. My Assistant Director has just finished reading it, and we are in agreement that we should purchase a set of at least 5 for our board. We would like to offer it to the board as a resource as well as for our membership to check out to read.
Now Homeschool Co-ops is available as an electronic book, available for immediate download as a pdf.
Price $10.00
What’s the difference between an ebook and the print version?
The content is exactly the same. I have the ebook laid out with two pages of the book on one sheet of paper (horizontally), so it takes fewer sheets of paper if you wish to print out the book or portions of the book.
See a sample of the pages: Two-page Layout Sample
Why would I want an electronic version?
You receive the book immediately. There is no waiting for delivery. It is stored forever on your computer. It will not get ripped, lost or eaten by your dog.
Can I print out several copies of the ebook to share with my co-op members?
No, sorry, but you cannot print out several copies. Electronic books have copyrights just like a print book. You may make one copy for your personal use. Your friends will have to purchase their own copies of the print or ebook.
What is the price of the ebook?
The ebook price is $10.00.
During the month of July 2010, I am offering a special bonus. When you purchase Homeschool Co-ops as an ebook, you will receive a free copy of another ebook, Questions and Answers for Homeschool Leaders.
Questions and Answers for Homeschool Leaders
Table of Contents
Read a Sample here
This 62 page ebook contains the most frequently asked questions from homeschool leaders on the IRS, nonprofit and tax exempt status, boards, conflict, money, fund raising, volunteers, paying workers and insurance. As you read the questions from other leaders and answers from Carol Topp, CPA, you will find practical and helpful guidelines on a variety of topics to run a successful homeschool group.
How will this work?
Click on Order Now button and you’ll be taken to my shopping cart program. It looks like this:
1. You enter your credit card number, email and name.
2. You will be directed to another website page, my download page. On that page you will be able to download your ebook immediately by clicking a link. The ebook will open as a pdf file. You will need Adobe Reader to view and print it. Get Adobe Reader for free here.
3. Save the document on your computer.
4. You can read the ebook on your computer screen or print it out.
You only have until July 31, 2010 to buy the electronic version of Homeschool Co-ops and receive the bonus copy of Questions and Answers for Homeschool Leaders. Order your copy today!
Price $10.00 for Homeschool Co-ops ebook (and bonus ebook)
A new twist on paying homeschool co-op teachers
July 2, 2010
I frequently advise homeschool co-ops to be careful how they pay teachers. I think it is best to treat paid teachers as employees or to have the parents in the co-op pay the teachers directly. In general I recommend homeschool co-ops avoid paying teachers as independent contractors from the co-op’s checking account.
See my other posts on the issue of paying teachers in a homeschool co-op
Is Your Hired Teacher Really an Employee?
Update on Teachers as Independent Contractors
JoAnn from Texas told me recently how her co-op pays teachers. It’s a new twist that I like and I believe the IRS would approve also.
The teachers in JoAnn’s homeschool co-op invoice the co-op for their services.
The co-op collects all the money from the families and pays the teachers’ invoices, rent and other necessary expense. Each teacher creates a bill for the amount the co-op owes him or her for teaching. The co-op provides 1099MISC forms to any teacher paid over $600 annually.
This makes the role of the teachers as independent contractors, and not as an employees of the co-op, very clear. One of the hallmarks of independent contractors is that they bill for their services and do not receive hourly wages or a salary.
This might be a system your co-op could adopt. Thanks JoAnn for sharing your idea!
My ebook Paying Workers in a Homeschool Organization covers paying workers as employees or independent contractors. It includes sample forms, tips and advice to help you pay workers in accordance with the IRS laws to help your organization pay their workers correctly. Written specifically for homeschool organizations.
Price: $7.00
Available for immediate download as a pdf file
Carol Topp, CPA
Special at The Old Schoolhouse magazine
July 1, 2010
My favorite homeschool magazine, The Old Schoolhouse, is running a special that you should check out!
Receive a 2-year subscription, free Homeschooling with Heart tote bag, and five FREE E-Books for just $17.76!
Sign up early to get all three goodies. It’s only good until July 4th, so don’t delay!
I think you’ll love this magazine as much as I do!
Carol Topp, CPA