VA Connecticut Research and Education Foundation Conflict of Interest Training

Course Objectives Define Conflict of Interest Explain NPC Conflict of Interest (COI) Policy Identify and Manage a COI

Conflict of Interest: Statutes NPC authorizing statute found in Title 38, United States code, sections 7361-7366 “ each director, officer and employee of a corporation established under this subchapter shall be subject to a conflict of interest policy adopted by that corporation.” 38 U.S.C. § 7366©(1)

Conflict of Interest Definition IRS Definition of COI policy Conflict of interest arises when a person in a position of authority over an organization, such as a director, officer, or manager, may benefit personally from a decision he or she could make. A conflict of interest policy consists of a set of procedures to follow to avoid the possibility that those in positions of authority over an organization may receive an inappropriate benefit.

Conflict of Interest: VHA Handbook 1200.17 Department of Veterans Affairs Nonprofit Research and Education Corporations authorized by title 38 United States Code(U.S.C.), sections 7361 through 7366 Establishes the rules that govern NPC Conflict of Interest policies and disclosure forms.

Conflict of Interest: VHA Handbook 1200.17 NPC directors, officers and employees are subject to the COI policy adopted by their assigned NPC Statutory VA members serve in their “official” VA capacity Each NPC must establish a written COI policy The NPC board retains responsibility for oversight of the COI policy at the NPC

Conflict of Interest: VHA Handbook 1200.17 The COI policy must, at a minimum: Require training about the policy Require disclosure of potential COI Require a statement of acknowledgment of understanding and agreement to comply with the COI policy Describe when a COI may exist Include a process for identifying and managing COI

Conflict of Interest: VHA Handbook 1200.17 COI policy mandatory training requirements(NPCs may require additional training): Upon hire or affiliation Annually for directors, officers and key employees COI policy must include mechanism for tracking training completion Note: The NPC COI training does not fulfill the requirements for all new VA employees to take Government ethics training, nor does VA Government ethics training fulfill the NPC COI training requirement.

Conflict of Interest: VHA Handbook 1200.17 Disclosure of potential COI Directors, officers and employees have a duty of loyalty to NPC. Financial disclosure forms will be used to identify and manage COI COI policy will contain the disclosure form and process

Conflict of Interest: VHA Handbook 1200.17 COI policy must require: Directors, officers and key employees to submit a financial disclosure form upon hire or affiliation, and annually thereafter; Directors, officers and all employees to sign a statement upon hire or affiliation acknowledging understanding of the NPC COI policy and agreement to comply with the policy NPC to maintain these COI statements

Conflict of Interest: VHA Handbook 1200.17 COI policy must: Describe when a COI may exist Include process for: Filing, reviewing, and tracking disclosure forms Identifying and managing COI

Conflict of Interest: The executive director must include in the annual report certification that each NPC director, officer and employee has complied with the NPC COI policy VHA handbook 1200.17 provides detailed procedures on COI policies and disclosure forms

Conflict of Interest: What is Conflict of Interest? COI arises whenever the personal or professional interests of director, officer or employee are potentially at odds with the best interests of the nonprofit. Note: examples of potential conflicts include one in which the NPC director/officer/employee proposes contracting with an organization in which they serve as director/officer/employee, or which is owned by a relative or business associate; and proposing a close relative or business associate for an NPC position.

Conflict of Interest: Five Questions. NPC’s should always consider these five questions: Is this matter a COI or could it be perceived as such by others? Is it prohibited by the self-dealing rules under the Internal Revenue Code(IRC)? Even if the transaction is not prohibited by the self-dealing rules, is it unfair to the NPC? That is, does it improperly benefit another person or organization? Does the transaction create an appearance problem? How would it look on the front page of tomorrow’s newspaper or to the NPC’s founders? Has the NPC followed the COI policy and documented that fact?

Is this matter a COI or could it be perceived as such by others? A COI arises whenever the “personal or professional interests” of a board member or NPC manager are, or appear to be, inconsistent or at odds with the interests of the NPC. Most conflict of interest arises in the context of proposed transactions with parties that fall on the following general categories: Director, officer or employee Family members of board members and NPC managers Organizations in which board members, NPC managers, and/or their family members have a significant financial relationship Organizations in which a board member, NPC manager, and/or family member is an officer, director, trustee or employee

Is is Prohibited by the Self-Dealing Rules? Self-dealing rules absolutely prohibit most transactions between NPC’s and their board members and NPC managers( and certain family members and affiliated companies), without regard to whether the transactions are fair-or even advantageous-to the NPC’s: The most dangerous conflicts of interest for NPC’s involve transactions that violate the self-dealing rules of the Internal Revenue Code. These rules prohibit private NPCs from engaging in certain transactions(called “acts of self-dealing”) with “disqualified persons” e.g. board members, NPC managers, and certain of their family members and affiliated organizations.

Even if the matter is not prohibited by the self, is it unfair to the NPC? Does it in properly benefit another person or organization? Some, but not all, of these activities that are prohibited by the self-dealing rules are: Buying and selling property from or to disqualified persons, even on terms that are favorable to the NPC. Renting property to disqualified persons, or leasing property from disqualified person except on a rent-free basis Lending money to disqualified persons, or borrowing money from disqualified persons except on an interest-free basis. Allowing disqualified persons to use an NPC’s income or assets, except for goods or services that are furnished to them on the same terms as other members of the public.

Even if the matter is not prohibited by the self, is it unfair to the NPC? Does it in properly benefit another person or organization? NPC’s must also be careful not to engage in COI transactions on terms that are unfair to the NPC. This is a separate legal violation-a breach of the fiduciary duties owed to NPC’s by board members and NPC managers. As fiduciaries, board members and NPC managers are required to act in the best interest of the NPC and not to engage in transactions that further their own interest at the NPC’s expense.

Acknowledgement The materials contained in this presentation were provided by the VA Nonprofit Program Office, Office of Research and Development, Veterans Health Administration, Department of Veterans Affairs.