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Protecting Nonprofits: Risk Management Tips

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Church Law & Tax editor Matthew Branaugh recently interviewed Sally Wagenmaker about recurring legal issues for churches and other nonprofits, emerging legal trends, and proactive risk management measures in the following Q & A article.

As an attorney experienced with working with churches and nonprofits, what are the recurring legal problems you consistently see arise for churches and other nonprofits?

Churches and other nonprofits must comply with myriad legal requirements, plus they are accountable to donors and their members as stewards of charitable resources. Many legal areas are implicated: governance, employment, real estate, abuse issues and related risk management, intellectual property, international activities, and tax issues. Because ministry organizations are varied and often complicated, so too are legal compliance issues.

Given limited resources and focus on ministry activities, attention is often not given to: annual government filing obligations, maintaining up-to-date bylaws that accurately fit the organization’s governance, proper real estate ownership and tax exemption matters, program safety, correctly handling employment matters, and permitted uses of creative works protected as intellectual property. Filing requirement issues may be relatively minor, but the other legal issues can result later in serious financial and operational implications.

What immediate steps can church leaders take to reduce the legal and risk liabilities associated with these issues?

Know thyself. Organizationally speaking, that means knowing where the church’s corporate charter, bylaws, and other governance documents are located, as well as the location of other key documents, including its real estate ownership documents, employee policies, and abuse prevention documents.

I recommend putting these materials in an electronic corporate notebook that provides access to all directors, officers, and other key leaders and tracks all updates as they occur to keep for the church’s future leaders.

Beyond documents, take an inventory of what and how the organization is carrying out its activities. For example, if the church runs a children’s ministry, it should have strong child abuse prevention policies in place, with documentation detailing its abuse-prevention policy, background screening, training, and appropriate follow-through measures. Or, does the church sponsor mission trips as well as other activities? Then make sure that the church has excellent liability insurance coverage, plus good waiver and consent forms and tax-compliant fundraising practices. 

If the church has employees, make sure that it complies with applicable tax requirements for any clergy housing allowances (e.g., annual board resolution, with percentage increases), that payroll is done properly (ideally through a payroll service), and that an excellent employee handbook is in place (including anti-harassment, social media, biblical code of conduct, and technology usage provisions). With respect to church services, make sure safety measures are in place, such as usher training, emergency evacuation plans, and property monitoring for potential problems. 

All such matters are likely best handled through an administrative pastor or other administrative leader. Churches may wish to hire such personnel or to seek out interested and capable volunteers.

What are some new or unexpected issues that you’ve seen surface for churches and nonprofits over the past year?

First, religious liberty issues continue to unfold with complexity, and from sometimes surprising directions. Generally speaking, churches should be attentive to governance areas, facility usage, and employment—in the event a lawsuit emerges challenging the church’s First Amendment rights.

We see this play out a number of ways. For example, on a broader level, our law firm is handling an unemployment case right now addressing the fundamental question of the extent to which the government gets to decide if an organization is religious “enough” for the categorical religious exemption to apply (and thus prevent a civil court from deciding the case).

Churches do not have to show whether they are “religious enough” for cases like this, but we are seeing employment cases involving non-ministerial employees in which civil courts are increasingly willing to evaluate the merits of certain claims.   

Second, safety issues are increasingly important, including sexual harassment, child protection, and violence. Likewise, new scandals involving clergy abuse of minors underscore the incredible importance of child safety protocols, effective screening and training for children and youth workers, high quality monitoring, and legally compliant reporting of problems.

The #MeToo movement has heightened the importance of protecting workers and nurturing a respectful culture where all are valued. The good news: these values are entirely consistent with biblical truths.

Many ministry leaders are stepping up passionately and responsibly with new workshops, trainings, and other measures to address these concerns. In particular, Jeff Dalrymple of Jacksonville, Florida, is leading the charge on an abuse prevention accreditation project called the Evangelical Council for Abuse Prevention. It involves an expert panel of nationally renowned leaders.

The council’s mission is focused on developing and maintaining model standards for religious and other tax-exempt organizations to help protect against child abuse and other forms of abuse and to provide related educational materials.

Beyond child and youth protection, churches continue to wrestle with preventing violent incidents (such as a shooting), resulting in the need for safety monitoring and related protocols. Lastly, data privacy and security issues for websites and donor-related data are quickly evolving into critical areas needing legal compliance.

For the second part of this interview series, see Matthew Branaugh's recent publication for Church Law & Tax here.

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