Nonprofit Dishonesty Exposure: What Happens When a Volunteer Has Access to Financial Data

Volunteers often handle money directly: counting cash boxes at fundraisers, running deposits to the bank, and reconciling totals after a thrift store sale closes. Staff and board members don’t always track financial access closely, and risk plans may skip it entirely in favor of injuries and accidents. Nonprofit liability insurance is often the coverage people reach for first, but theft by someone already inside the organization (a trusted volunteer or employee) typically isn’t the kind of loss that coverage is meant to address.

What Financial Access Do Volunteers Typically Have?

Financial access to a volunteer program goes further than handling cash at an event. In smaller organizations without dedicated finance staff, a volunteer treasurer or board member sometimes handles bookkeeping. 

Signing authority on a checking account can get extended informally during a busy season and never revisited once things calm down. Add in access to donor payment records or an online giving platform, and a volunteer can end up with more financial access than anyone intended, usually without a formal decision behind it. 

What Happens When a Volunteer Steals or Diverts Funds?

Beyond the direct financial loss, a diversion that becomes public can cost an organization donor confidence, and the reputational damage can outlast the dollar amount involved. Depending on what happened and where the organization operates, it can also trigger reporting obligations to law enforcement or, for larger losses, tax authorities.

According to HeadStart.gov, catching wrongdoing before it grows into a larger loss depends on nonprofits staying vigilant in monitoring their own programs rather than assuming good faith will carry them through.

What Liability Insurance Doesn’t Cover

Liability insurance for nonprofits is generally structured to respond to claims brought by someone outside the organization, such as allegations of bodily injury or property damage. A volunteer who misappropriates organizational funds creates a different kind of loss: money taken from the nonprofit itself, not a claim brought against it by a client, donor, or bystander.

Dishonesty or fidelity coverage, like the protection VIS offers, addresses this issue separately by protecting the organization against loss from theft or embezzlement committed by a covered volunteer or employee. Internal controls are what keep that kind of loss from happening in the first place; however, the coverage is there for what those controls miss. VIS members can find guidance in the resource library, including a VIS Vault paper on preventing dishonesty in a volunteer program.

Internal Controls That Reduce the Risk

A few concrete practices go a long way toward closing this gap:

• Require two signatures. Set a dollar threshold above which checks and authorizations need sign-off from two people, not one.
• Reconcile independently. Have someone outside of day-to-day transactions review bank and credit card statements on a regular schedule.
• Screen volunteers with financial access. Treat a background check as standard due diligence for anyone handling money, not a signal of distrust toward volunteers generally.
• Create a confidential reporting channel. Give staff and volunteers a way to report suspected misuse without fear of retaliation.

Layering these practices with liability insurance for nonprofits and dedicated dishonesty coverage closes both categories of risk, the kind brought by outsiders and the kind that starts inside the organization.

Protecting Your Organization Before Money Goes Missing

Simple controls can reduce the chance that funds go missing without detection. Set dollar thresholds for check approvals, require a second review of reconciliations, and screen anyone with access to donor payment records. Nonprofit insurance, liability, and dishonesty coverage should support those controls, not replace them.

For details about the specialized volunteer insurance VIS offers, click the “VIS is…” tab at the top of the page and scroll down to the FAQ section. VIS members also have 24/7 access to the “VIS Vault” of risk-management resources, including VIS Vault of Preventer Papers that are useful for small-group safety training or for giving to volunteers individually.

FAQ About Volunteer Dishonesty

Does general liability insurance cover volunteer theft or embezzlement?

No. General liability insurance responds to third-party claims of bodily injury or property damage. Theft or embezzlement by a volunteer falls under dishonesty or fidelity coverage, a separate type of protection.

What is dishonesty or fidelity coverage, and does it apply to volunteers?

Dishonesty or fidelity coverage protects an organization against financial loss from theft committed by a covered individual. Some programs extend that protection to volunteers as well as employees, including the dishonesty coverage available through VIS.

About the Author

William R. Henry, Jr. is Vice President and Director of Member Benefits at Volunteers Insurance Service Association, Inc. (VIS), where he leads membership development and delivers risk management solutions tailored to volunteer-based organizations nationwide. A recognized authority on volunteer risk management, he is a frequent speaker and author on best practices for safe and effective volunteer engagement. He is accredited by the International Association of Business Communicators. With a background in communications, journalism, and public affairs, Henry brings a strategic perspective to supporting nonprofit organizations across the United States.

About VIS

Volunteers Insurance Service Association, Inc. (VIS) is a membership organization serving more than 3,500 volunteer-based nonprofit organizations and public entities nationwide. VIS is the only association that offers these three insurance programs designed specifically for volunteers: volunteer accident, volunteer liability, and volunteer excess automobile liability.

If you are interested in protecting your volunteers through the unique VIS insurance program, please click on the “Get volunteer insurance now” link on the home page, or call 800.222.8920. For more information on VIS’s risk-management resources for members and our vendor partners, click on the “Member Benefits” tab.