Sources of Claims Against Nonprofits Regulators and donors are among the many sources of liability claims against nonprofit organizations.


“The government is looking and going back into those government grants and seeing whether or not companies are properly using the funds and whether or not they are accounting for them in an appropriate manner.”


Janet Dreifuss, Alliant


Nearly half of nonprofits have been sued in the last decade on matters related to directors & officers liability. While most of those suits involve employment practices, there are many other significant sources of claims. Chief among them are regulators and donors, but nonprofits also experience claims from volunteers, creditors, and dues-paying members. Regulatory claims are so prevalent because of the reliance of nonprofits on government funding. A failure to follow spending and accounting guidelines can result in fines and criminal penalties. Defense costs can be enormous even without an ultimate finding of liability. Regulatory exposures also can spring from tax liabilities, its nonprofit tax status and Sarbanes-Oxley.


Another exposure comes from donors, who may sue if grants restricted to a particular use are spent in another way.


Copyright © 2012 by A.M. Best Company, Inc. All rights reserved. No part of this report may be reproduced, stored in a retrieval system or transmitted in any form or by any means; electronic, mechanical, photocopying, recording or otherwise.


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