11

ConflictConflict of of InterestInterest

Paul Clarke Nonprofit Resource Paul Clarke Nonprofit Resource CenterCenter

23 @ 4 Series ~ 23 @ 4 Series ~ April 23, 2010April 23, 2010

22

Today’s ObjectivesToday’s Objectives Need for a COI policyNeed for a COI policy Types of Types of Conflicts of InterestConflicts of Interest What should be includedWhat should be included Preventing COIsPreventing COIs ScenariosScenarios

33

The IRS on The IRS on ConflictConflict of of InterestInterest

““Apart from any appearance Apart from any appearance of impropriety, of impropriety, organizations organizations will lose their will lose their tax-exempt statustax-exempt status unless unless they operate in a manner they operate in a manner consistent with their consistent with their charitable purposes.”charitable purposes.”

  

Updated Sept. 2, 2009Updated Sept. 2, 2009

44

Types of Conflict of Types of Conflict of InterestInterest

1.1. PotentialPotential2.2. ActualActual3.3. Self-dealingSelf-dealing4.4. CompetitiveCompetitive

Source: Governing Boards: Their Nature and Nurture by Cyril O.HouleSource: Governing Boards: Their Nature and Nurture by Cyril O.Houle

55

A COI Policy should A COI Policy should havehave

Educational component Educational component Defines COIDefines COI How to disclose a COIHow to disclose a COI How to address COIHow to address COI

ProtocolsProtocols Annual COI signed StatementsAnnual COI signed Statements

66

What goes in a COI What goes in a COI Policy?Policy?

PurposePurpose Direct or Indirect Financial InterestDirect or Indirect Financial Interest Employees coveredEmployees covered Disclosure of InterestDisclosure of Interest MinutesMinutes Failure to discloseFailure to disclose Annual Disclosure statementAnnual Disclosure statement

77

Troublesome areas = Troublesome areas = FraudFraud??

Expense Expense accounts & accounts & Travel claimsTravel claims

Loans, gifts, Loans, gifts, bonuses, & bonuses, & perks to E.D.perks to E.D.

88

Troublesome areas = Troublesome areas = FraudFraud??

Excessive Excessive compensatiocompensation & Benefitsn & Benefits

99

What is Excess Benefit?What is Excess Benefit?Any transactionAny transactionthat exceeds fairthat exceeds fairmarket value formarket value forthe benefitthe benefitreceived. received.

Such as…Such as…~Financial~Financial~Severance~Severance~Transfer of ~Transfer of

propertyproperty

1010

Lack of enforceable Lack of enforceable COI policyCOI policy

Lack of enforceable Lack of enforceable code of ethicscode of ethics

Financially illiterate Financially illiterate board membersboard members

Other Troublesome areasOther Troublesome areas

1111

Part IX & X of the 990Part IX & X of the 990

1212

So who’s Disqualified?So who’s Disqualified?

Any person in aAny person in aposition to exerciseposition to exercisesubstantial substantial

influenceinfluenceduring the Look-during the Look-back period.back period.

1313

1414

ScenariosScenariosIs it?Is it?

Is it Not?Is it Not?

Or…Or…

1515

Is it or Is it Not?Is it or Is it Not?

A board A board member offers member offers his legal his legal expertise to expertise to draft a contractdraft a contract

1616

Is it or Is it Not?Is it or Is it Not?

A staff member is elected to A staff member is elected to serve on the board of the serve on the board of the organization where she worksorganization where she works

1717

Is it or Is it Not?Is it or Is it Not?

An organization An organization makes a large makes a large purchase from a purchase from a local firm owned local firm owned by a board by a board member’s relativemember’s relative

1818

Is it or Is it Not?Is it or Is it Not? The executive The executive

director uses director uses the agency’s the agency’s postage meter postage meter to mail invoices to mail invoices to his private, to his private, personal clients.personal clients.

1919

Is it or Is it Not?Is it or Is it Not? A board member A board member

serves on two serves on two similar boards similar boards and knows about and knows about a competitive a competitive grant, for which grant, for which both boards could both boards could and should apply. and should apply.

2020

Is it or Is it Not?Is it or Is it Not? A board A board

member also member also serves on the serves on the board of a local board of a local foundation foundation which funds which funds this agency.this agency.

2121

Bottom Line: Legal Bottom Line: Legal ObligationsObligations

Legal standard of Legal standard of Loyalty requires Loyalty requires agency’s financial agency’s financial interests ahead interests ahead of personal gain.of personal gain.

2222

Does it Does it smell smell

funny?funny?Does is it get Does is it get

a thumbs a thumbs up?up?

Ask this…Ask this…

2323

Resources - BooksResources - Books Managing Conflicts of Interest by Daniel Managing Conflicts of Interest by Daniel

Kurtz & Sarah Paul 361.70681 K96M (2006)Kurtz & Sarah Paul 361.70681 K96M (2006) Nonprofit Board Answer Book by Robert Nonprofit Board Answer Book by Robert

Andringa 658.422 AN2NAndringa 658.422 AN2N The Ultimate Board Member’s Book by Kay The Ultimate Board Member’s Book by Kay

Sprinkel Grace 658.422G75USprinkel Grace 658.422G75U Sarbanes-Oxley for Nonprofit Boards by Sarbanes-Oxley for Nonprofit Boards by

Peggy Jackson 657.98 J13SPeggy Jackson 657.98 J13S Guide to Nonprofit Corporate Governance in Guide to Nonprofit Corporate Governance in

the Wake of Sarbanes-Oxley 346.73064 G94the Wake of Sarbanes-Oxley 346.73064 G94

2424

Resources - OnlineResources - Online http://www.councilofnonprofits.org/?http://www.councilofnonprofits.org/?

q=conflict-of-interestq=conflict-of-interest http://www.boardsource.org/http://www.boardsource.org/

Knowledge.asp?ID=3.389Knowledge.asp?ID=3.389 http://www.irs.gov/charities/charitable/http://www.irs.gov/charities/charitable/

article/0,,id=154667,00.htmlarticle/0,,id=154667,00.html http://www.nonprofitrisk.org/advice/http://www.nonprofitrisk.org/advice/

samples/ConflictPolicy.docsamples/ConflictPolicy.doc+ http://www.lawmart.com/forms/fnp-+ http://www.lawmart.com/forms/fnp-

tt09.htmtt09.htm