What are the legal responsibilities of homeschool leaders?

Carol,

We are hesitant about linking personal Social Security Numbers to the group EIN. What legal ramifications does putting personal SSN info on the group form have for that individual?

Tasha

Tasha,

The IRS form SS-4 Application for Employer Identification Number asks for the name of a responsible party and either a SSN, ITIN (tax ID for aliens) or EIN (for businesses). You asked what are the legal ramifications of putting a name and SSN on the EIN application for a nonprofit organization.

The answer lies in the responsibility of leadership. All leaders, officers or directors of a nonprofit has some responsibilities. Each board member has a fiduciary (i.e. legal) duty of care and loyalty to manage the organization and its funds within the purpose/mission of the organization and not for private gain or benefit. The board’s job is to govern the organization, be responsible for the management of funds, and be responsible for its programs. Those are the “legal ramifications” of leadership.

Specifically, the duty of care includes:

• Be aware of the nonprofit’s mission, plans and policies
• Be sure that all activities are in accordance with the mission, plans and policies
• Fully participate in Board meetings, deliberations and decisions.
• Read, evaluate and ensure the accuracy of all reports, including minutes and financial statements.
• Ensure the organization has sufficient people, funding and other assets to meet its purpose.

The duty of loyalty includes clearly making a reasonable and good-faith effort, when acting as a Board member, to:

• Always be thinking about, and focusing on, the priorities of the nonprofit, and not that of yourself or another organization.
• Share ideas, opinions and advice to forward the progress of the nonprofit.
• Represent the nonprofit in a favorable light.

These definitions and examples come from an excellent article on board responsibilities found at Managementhelp.org, a great website with lots of articles on running a nonprofit.

http://managementhelp.org/misc/Fiduciary-Responsibilities-of-NP-Board.pdf

Most of these fiduciary (legal) responsibilities are not too heavy for any loyal board member. I think they are very reasonable. It might be a good idea to share them with new and old board members.

So next time someone asks, “What are my responsibilities as a board member?” or “What are the legal ramifications of putting my name on an IRS form?” you have an answer to give.

Carol Topp, CPA

Do you need insurance on your officers?

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

Should you compensate board members?

I know that the board members of a homeschool groups are hard-working people.  They not only homeschool their own children, but they organize support groups and co-ops to help other homeschool families.  Sometimes a homeschool group would like to “reward” these generous individuals.

Is it OK to compensate your board members?

A homeschool co-op in the Midwest contacted me recently to apply for 501c3 tax exempt status.  The Treasurer told me that her co-op had been paying their leaders anywhere from $200-$1,200 a year for their service on the board.  I discussed why paying board members was not a typical practice.  Here is some of what we discussed:

• Payments to board members can create a conflict of interest. Does the loyalty of the leader lie in herself or in the best interests of the group?
• Paying board members can call into question the duty of loyalty of the board member.  Is she acting in the best interest of the group rather than a personal , financial interest?
• Payment could compromise the leader’s duty of care. A leader should act in good faith, with the care an ordinary, prudent person would exercise and with the best interest of the group in mind.
• Payments on nonprofit boards is not a typical practice.  Charities do not usually compensate their board members. Their funds usually go back into the program. Board members serve because they have a passion for the mission and a concern for the members.
• Board payments can undermine the volunteer spirit of other members. Why should a member volunteer her time when others are paid for their efforts?
• Can cause dissension and a sense of injustice or imbalance in the group.
• Payments did not have member approval. In this particular case, the board voted themselves compensation, but never put the idea to a member vote.

This group has wisely decided to stop payments to board members. I think the group will be better served by an all-volunteer board and healthier in the long run.

Carol Topp, CPA

Fraud in a homeschool group

I received a phone call from a homeschool support group leader that had just learned her treasurer had embezzled over $10, 000 from her group during the past two years. Her tale was heartbreaking as she spoke of what painful lessons she had learned and how to go forward.

Some of the signals that the leader saw that tipped her off were:

• The checkbooks was kept locked in the treasurer’s business office and frequently inaccessible.
• The leader had a difficult time getting the treasurer to write checks to members for expenses.
• No budget was ever created.
• The treasurer was not detailed oriented.
• The treasurer also did the bank reconciliation, so no one else saw the bank statements.
• The treasurer’s business income was severely hit by the recession making his personal finances in trouble.
• The treasurer was married to the vice chair, who was a close friend of the leader, so the leader was reluctant to confront her friends.
• The board was small and few people were willing to volunteer, making the leader desperate and grateful when anyone said they would serve as treasurer.

Here is what the group is doing now:

• Adding more board members
• Using a bank account with on-line access for visibility
• Creating a budget
• Amending bylaws and policies to add accountability
• Having someone besides the treasurer do  the bank reconciliation
• Pursuing restitution from the treasurer
• Consulting with a lawyer on when to use criminal prosecution

I hope you don’t ever face a similar situation.  To prevent fraud in your homeschool group, follow the practices mentioned above and in my book Money Mangement for Homeschool Organizations which you can order from the Bookstore page.

Carol Topp, CPA

Homeschool Leader, Do You Need Help?

Should a co-op be a separate organization?

Carol,

We have one entity (group) that works outside of our association, this is our Co-op group. This group does take in money – I believe it’s run out of a separate bank account. I know our Co-op group has a board, and bylaws but not an EIN number, which I know is very easy to get. What are they benefits of us staying as one group? My question is: should our Co-op group run their funds separately like this?

Sandy in TX

Sandy,

Your co-op could be organized as under your association or as a separate group. It’s really up to you. Since they have their own separate board and bylaws, perhaps they are really operating as a separate unincorporated association already. You could be officially separate if they obtain their own Employer Identification Number (EIN) from the IRS.

There might be advantages to staying as one group. There are fewer volunteers for the board positions, consolidated financial reports, and shared workload. The co-op could remain a part of your organization, but with a separate checking account and its own budget. It could be self-sustaining financially, but still part of your association. Many church-run schools operate like this, financially self-sufficient, but still under the umbrella of the church.

Carol Topp, CPA

Using Quickbooks for reports

Hi Carol,

Our Board of directors for our homeschool group of 100 families just received your 2 books (Money Management for Homeschool Organizations and Tax Exempt 510c3 Status for Homeschool Organizations).  I have read them.  It has reassured me that we are on the right track and that we have instituted many of the things that you mentioned.

We have purchased Quickbooks and our treasurer is working hard to learn  the software.

What financial reports do we need to generate monthly?  We need these reports to be a simple process.The Balance Sheet and P&L (Profit and Loss) statement in Quickbooks looks are overwhelming.

We are not accountants and double entry lines are confusing.We have reconciled our checkbook successfully.  YEAH!

Any advise would be helpful,

Hilary S

Hilary,

I’m glad that my books were helpful.  Your organization sounds as if they are getting things set up well.  I hope you’ll be serving homeschool families for a long time to come.

I think Quickbooks (QB) can be as simple or as complicated as it needs to be. The reports your treasurer generates is dependent on what the board wants to see. When I was treasurer, I gave my board a P&L (Profit and Loss) statement.  They really liked to see the budget in one column and actual P&L in another column.  Then they could see how we were doing compared to our budget. This report can be generated in QB as a Budget Report.
I also created a mini balance sheet at the bottom of the P&L.  I took the amount in the checking account and then listed payments to be made.  This gave the board an idea of how much cash we had on hand and where it was planned to go.

If the P&L statements in QB are too overwhelming, then perhaps you’re not using QB correctly.  I frequently see QB users make their Chart of Accounts too long.  Then the P&L becomes 2-3 pages long.  I recommend that a P&L be condensed into one page or less.

If your treasurer would like my help in setting up QB, I’d be happy to help.  She can e-mail me with what needs to be done and I’ll give you an estimated cost.  I also do QB training over the phone. I keep things as simple as possible.

I hope that helps.  I wish you the best of success! (Congrats on balancing the checkbook!)

Carol Topp, CPA

Off to Home Educators Assoc of Virginia (HEAV) Convention

For the next few days I will be at the Home Educators Assoc of Virginia (HEAV) Convention in Richmond, VA.

They have a pretty busy schedule for me. I’ll be giving workshops on:

• Budget Is a Dirty Word: Money Management for Those Who Hate to Manage Money
• Wanna Be a WAHM? The Pitfalls and Possibilities of Being a Work at Home Mom
• Small Business for Teenagers
• Is Your Homeschool Group Ready for the Next Step? Becoming a 501c3 Tax-Exempt Organization
• How to Start and Manage a Homeschool Organization: Boards, Budgets, and Bylaws

(see full descriptions of the workshops here and get the handouts here)

I’ll also be attending the homeschool leaders lunch and I am serving on a Q&A panel for leaders. I hope to meet some of you.

If you’ll be at HEAV, come by my booth #237 or to a workshop and say hello!

Carol Topp, CPA

Alert to homeschool leaders

The Homeschool Group Leader blog had this alert to homeschool leaders:

We want to bring your attention to a situation that occurred recently so you can be on your alert for any suspicious calls. Yesterday, the Home School Foundation (the charitable branch of HSLDA) received a call from an HSLDA member family who had received a suspicious call from a”Dr. Carey.”

Dr. Carey claimed to be a homeschooling mother of 12 gathering information for research work on behalf of the Home School Foundation. She told the family, in this case, the leader of a local homeschool group, that their group had been nominated by members in their group for a compassion grant from HSF.

To qualify for the grant, Dr. Carey explained she needed to ask some questions. These questions started with general queries about homeschooling and quickly led to questions concerning the family’s disciplinary techniques. The family then called HSF and confirmed that there isn’t a Dr. Carey on the payroll with either HSF or HSLDA.

While the Home School Foundation does offer compassion grants to homeschooling families in need, neither HSLDA nor the Home School Foundation would ever call their members and question them on the discipline of their children.

Also, if you have caller ID, all calls from HSLDA read: (540) 338-5600 while all HSF calls read: (540) 338-8688. This caller showed up as a restricted or blocked number. HSLDA does not block our number from your phone.

If any families in your group receive any calls from someone claiming to be from HSLDA or HSF and the caller’s number is either blocked or doesn’t match either of the numbers above, please gather as much information as possible and let us know. And let’s pray that this person will not be successful in deceiving any HSLDA members or other homeschooling families.

Please contact Abigail Dunlap at DiscountGroups@ …if you have any further questions or need to report a suspicious call.

Regards,
Abigail Dunlap
Discount Group Program Administrator
Home School Legal Defense Association (540) 338-5600

There are legitimate researchers out there, but be suspicious if a researcher’s questions become too personal. You do NOT have to answer anyone’s questions if you don’t want to.

Be very suspicious of any organization offering you a “grant” that you didn’t apply for. Grants are difficult to obtain and very competitive; foundations do not make unsolicited grants. It just doesn’t happen.

Carol Topp, CPA

Ten Ways to Torture a Tired Leader

My friends Kristen and Denise of Homeschool Group Leader have a sense of humor.

You have to be able to laugh at human weaknesses if you are a homeschool leader.

Here are their 10 Ways to Torture a Tired Leader:

1. Don’t Listen ~ Talk all during the announcements, the meeting discussions and while your leader shares important information.
2. Be Clueless ~ Ask your leader repeated questions about the information that you didn’t just listen to. Send them one-line questions in individual emails spread out over time.
3. Fill Other Members’ E-mail In Boxes ~ Send your repeated questions and comments to everyone on the list, filling all in-boxes, instead of only the in-box of the leader to whom you’re writing.
4. Quit at the Last Second ~ Volunteer to help with, or better yet–lead–an activity, then back out at the very end, leaving it all for the leader to complete.
5. Gossip ~ Discuss the leader’s clothes, kids, home life, homeschool, and leadership style –openly and with great fervor.
6. Complain ~ Never be happy with the place, the decisions, the agenda, the trips, the teachers, or the way the leader looks at you.
7. Show Up Late ~ Choose carefully the events that need to start at a specific time and strategically and systematically show up 15 or 30 minutes late.
8. Never Help Clean Up ~ Don’t stay after any event and help clean up. After all, isn’t that what the leader is there for??
9. Don’t Watch Your Kids ~ Let them run wild or talk while someone else is talking. Then get offended when someone asks them to be quiet or to sit down.
10. Be Demanding ~ Always express your opinion as fact. Be sure you speak every time someone else does, making sure that your frustrations and wants are very clear each time.

Recognize anyone?  Maybe you at times? Some of these are too close to the truth to be truly funny!

Carol Topp, CPA

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