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Conflict of Interest in Nonprofit Organizations: Policy and Prevention Strategies

Learn about the importance of Conflict of Interest (COI) policies, types of COIs, and how to prevent them in nonprofit organizations. Discover scenarios, IRS regulations, and troublesome areas regarding COIs. Ensure legal compliance and ethical standards to protect your organization's reputation.

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Conflict of Interest in Nonprofit Organizations: Policy and Prevention Strategies

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  1. Conflict of Interest Paul Clarke Nonprofit Resource Center 23 @ 4 Series ~ April 23, 2010

  2. Today’s Objectives • Need for a COI policy • Types of Conflicts of Interest • What should be included • Preventing COIs • Scenarios

  3. 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

  4. Types of Conflict of Interest • Potential • Actual • Self-dealing • Competitive Source: Governing Boards: Their Nature and Nurture by Cyril O.Houle

  5. A COI Policy should have • Educational component • Defines COI • How to disclose a COI • How to address COI • Protocols • Annual COI signed Statements

  6. What goes in a COI Policy? • Purpose • Direct or Indirect Financial Interest • Employees covered • Disclosure of Interest • Minutes • Failure to disclose • Annual Disclosure statement

  7. Troublesome areas = Fraud? • Expense accounts & Travel claims • Loans, gifts, bonuses, & perks to E.D.

  8. Troublesome areas = Fraud? • Excessive compensation & Benefits

  9. What is Excess Benefit? Any transaction that exceeds fair market value for the benefit received. Such as… ~Financial ~Severance ~Transfer of property

  10. Other Troublesome areas • Lack of enforceable COI policy • Lack of enforceable code of ethics • Financially illiterate board members

  11. Part IX & X of the 990

  12. So who’s Disqualified? Any person in a position to exercise substantial influence during the Look- back period.

  13. Is it? Or… Is it Not? Scenarios

  14. Is it or Is it Not? • A board member offers his legal expertise to draft a contract

  15. Is it or Is it Not? • A staff member is elected to serve on the board of the organization where she works

  16. Is it or Is it Not? • An organization makes a large purchase from a local firm owned by a board member’s relative

  17. Is it or Is it Not? • The executive director uses the agency’s postage meter to mail invoices to his private, personal clients.

  18. 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.

  19. Is it or Is it Not? • A board member also serves on the board of a local foundation which funds this agency.

  20. Bottom Line: Legal Obligations • Legal standard of Loyalty requires agency’s financial interests ahead of personal gain.

  21. Ask this… Does it smell funny? Does is it get a thumbs up?

  22. 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

  23. 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

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