Risk Management Is More than Just Buying Insurance

Child abuse on ministry premises and during ministry-sponsored activities continues to plague churches and other ministries. Claims of sexual misconduct against ministers are common. There is widespread noncompliance by ministry staff related to copyright laws—both in using office copiers to reproduce copyrighted materials and illegally copying computer software. And how can we forget the loose handrails, the frayed carpet, and the dimly lit parking areas?

There are risks in virtually every aspect of ministry. Aggressive ministry requires boldness—sometimes in spite of risks. If leadership places too much emphasis on the risks, many ministries would be scrapped. The challenge is to carefully identify the risks that are present throughout your ministry. Then, decide whether to avoid a particular risk, accept the risk, transfer the risk, or reduce the risk.

Risk avoidance. Most ministries choose to avoid high-risk activities. Avoiding illegal acts is a good place to start. For example, religious organizations are prohibited from participating or intervening, directly or indirectly, in any political campaign on behalf of or in opposition to any candidate for public office. If the IRS determines that your ministry has engaged in these activities, it could result in a loss of exempt status. Whether your annual budget is $30,000 or $3 million, no ministry wants to lose that privilege.

On the other hand, some activities are legal but simply present more risk than many ministries are willing to accept. Offering an activity like repelling in a summer youth program fits this category. Securing insurance coverage is difficult.

Risk acceptance. It’s a principle of insurance:  The higher the insurance deductible, generally the lower the premium. If your ministry is financially strong enough to assume a certain degree of risk, the choice of high deductibles will often save insurance costs. This is a form of risk acceptance.

Depositing the offerings on Sunday is more secure than leaving the funds in the church until Monday morning. However, since the amount of cash in the offerings are likely minimal in some cases, church leadership may decide to accept the risk of storing the money in the church until it can be counted on Monday.

Risk transfer. Insurance is often one of the best ways to transfer risk. Arranging a sound ministry insurance program calls for collaboration between the ministry leadership who know the organization’s properties and activities and an insurance agent or broker who has competence in the ministry insurance markets.

Most ministries have carefully worked through an adequate casualty insurance program, but it is not uncommon to find coverage lacking in other areas. Workers compensation insurance is sometimes overlooked. It is generally required by law in all states to be carried by the employer. Coverage of clergy is often required even if the minister is filing as self-employed for income tax purposes. A few states exempt churches from workers compensation coverage.

Ministries often forget to provide coverage for work teams who travel to a mission field in a foreign country. Insurance for emergency medical evacuation and assistance services should be considered.

Risk reduction and prevention. Incorporation of a ministry is one of the best ways to reduce certain risks. One of the key reasons to incorporate is to protect members from personal liability for the actions of fellow members. Some ministries were incorporated, but because the incorporation was for a limited term or annual state corporate reports were not submitted, the incorporation will be considered inactive.

Risk reduction can also be achieved by adopting sound fringe benefit and expense reimbursement policies. Here are just a few real-life examples I have seen in ministries of significant size:

• salaries of all ministerial and lay employees reduced by the amount of a tithe on the salary to reduce social security and income tax—this is a dangerous practice inviting a dispute with the government over tax liability,

• designation of minister’s housing allowances at the end of the calendar year instead of before the year begins—housing allowances are never retroactive;

• reimbursement of employees’ out-of-pocket medical expenses without a properly established HRA, FSA or Cafeteria plan—this is just more taxable income; and

• treating the payment of a ministry leader’s whole life policy premium as tax-free—it’s taxable if the leader names the beneficiary.

Some preventive steps can be taken to help prevent risk. For example, volunteers who work with youth and children may be asked to participate in a rigorous screening process and a lengthy personal interview. They could be required to provide references and open their doors to a home visit. Increasingly, ministries even run police background checks. Once volunteers are screened and allowed to serve, ministries may still require volunteers to work in “buddy systems” to prevent incidents of misconduct or accusations against the ministry or volunteers.  

Risk prevention can also include having a knowledgeable individual or committee conduct a periodic safety inspection of ministry property to determine if parking areas are adequately illuminated, check for defective playground equipment, examine first aid kits, and much more.

Summary. Ministry risk management is more complex than it appears. It’s an ongoing challenge, but ministries cannot afford to avoid it.