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Conflict of Interest. Paul Clarke Nonprofit Resource Center 23 @ 4 Series ~ April 23, 2010. Today’s Objectives. Need for a COI policy Types of Conflicts of Interest What should be included Preventing COIs Scenarios. The IRS on Conflict of Interest.
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Conflict of Interest Paul Clarke Nonprofit Resource Center 23 @ 4 Series ~ April 23, 2010
Today’s Objectives • Need for a COI policy • Types of Conflicts of Interest • What should be included • Preventing COIs • Scenarios
The IRS on Conflict of Interest “Apart from any appearance of impropriety, organizations will lose their tax-exempt status unless they operate in a manner consistent with their charitable purposes.” Updated Sept. 2, 2009
Types of Conflict of Interest • Potential • Actual • Self-dealing • Competitive Source: Governing Boards: Their Nature and Nurture by Cyril O.Houle
A COI Policy should have • Educational component • Defines COI • How to disclose a COI • How to address COI • Protocols • Annual COI signed Statements
What goes in a COI Policy? • Purpose • Direct or Indirect Financial Interest • Employees covered • Disclosure of Interest • Minutes • Failure to disclose • Annual Disclosure statement
Troublesome areas = Fraud? • Expense accounts & Travel claims • Loans, gifts, bonuses, & perks to E.D.
Troublesome areas = Fraud? • Excessive compensation & Benefits
What is Excess Benefit? Any transaction that exceeds fair market value for the benefit received. Such as… ~Financial ~Severance ~Transfer of property
Other Troublesome areas • Lack of enforceable COI policy • Lack of enforceable code of ethics • Financially illiterate board members
So who’s Disqualified? Any person in a position to exercise substantial influence during the Look- back period.
Is it? Or… Is it Not? Scenarios
Is it or Is it Not? • A board member offers his legal expertise to draft a contract
Is it or Is it Not? • A staff member is elected to serve on the board of the organization where she works
Is it or Is it Not? • An organization makes a large purchase from a local firm owned by a board member’s relative
Is it or Is it Not? • The executive director uses the agency’s postage meter to mail invoices to his private, personal clients.
Is it or Is it Not? • A board member serves on two similar boards and knows about a competitive grant, for which both boards could and should apply.
Is it or Is it Not? • A board member also serves on the board of a local foundation which funds this agency.
Bottom Line: Legal Obligations • Legal standard of Loyalty requires agency’s financial interests ahead of personal gain.
Ask this… Does it smell funny? Does is it get a thumbs up?
Resources - Books • Managing Conflicts of Interest by Daniel Kurtz & Sarah Paul 361.70681 K96M (2006) • Nonprofit Board Answer Book by Robert Andringa 658.422 AN2N • The Ultimate Board Member’s Book by Kay Sprinkel Grace 658.422G75U • Sarbanes-Oxley for Nonprofit Boards by Peggy Jackson 657.98 J13S • Guide to Nonprofit Corporate Governance in the Wake of Sarbanes-Oxley 346.73064 G94
Resources - Online • http://www.councilofnonprofits.org/?q=conflict-of-interest • http://www.boardsource.org/Knowledge.asp?ID=3.389 • http://www.irs.gov/charities/charitable/article/0,,id=154667,00.html • http://www.nonprofitrisk.org/advice/samples/ConflictPolicy.doc + http://www.lawmart.com/forms/fnp-tt09.htm