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

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

3. 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. 4 Types of Conflict of Interest 1. Potential 2. Actual 3. Self-dealing 4. Competitive Source: Governing Boards: Their Nature and Nurture by Cyril O.Houle

5. 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. 6 What goes in a COI Policy? Purpose Purpose Direct or Indirect Financial Interest Direct or Indirect Financial Interest Employees covered Employees covered Disclosure of Interest Disclosure of Interest Minutes Minutes Failure to disclose Failure to disclose Annual Disclosure statement Annual Disclosure statement

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

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

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

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

11. 11 Part IX & X of the 990

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

13. 13

14. 14 Scenarios Is it? Is it Not? Or…

15. 15 Is it or Is it Not?  A board member offers his legal expertise to draft a contract

16. 16 Is it or Is it Not?  A staff member is elected to serve on the board of the organization where she works

17. 17 Is it or Is it Not?  An organization makes a large purchase from a local firm owned by a board member’s relative

18. 18 Is it or Is it Not?  The executive director uses the agency’s postage meter to mail invoices to his private, personal clients.

19. 19 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.

20. 20 Is it or Is it Not?  A board member also serves on the board of a local foundation which funds this agency.

21. 21 Bottom Line: Legal Obligations  Legal standard of Loyalty requires agency’s financial interests ahead of personal gain.

22. 22 Does it smell funny? Does is it get a thumbs up? Ask this…

23. 23 Resources - Books Managing Conflicts of Interest by Daniel Kurtz & Sarah Paul 361.70681 K96M (2006) Managing Conflicts of Interest by Daniel Kurtz & Sarah Paul 361.70681 K96M (2006) Nonprofit Board Answer Book by Robert Andringa 658.422 AN2N Nonprofit Board Answer Book by Robert Andringa 658.422 AN2N The Ultimate Board Member’s Book by Kay Sprinkel Grace 658.422G75U The Ultimate Board Member’s Book by Kay Sprinkel Grace 658.422G75U Sarbanes-Oxley for Nonprofit Boards by Peggy Jackson 657.98 J13S 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 Guide to Nonprofit Corporate Governance in the Wake of Sarbanes-Oxley 346.73064 G94

24. 24 Resources - Online http://www.councilofnonprofits.org/?q=conflict- of-interest http://www.councilofnonprofits.org/?q=conflict- of-interest http://www.boardsource.org/Knowledge.asp?ID =3.389 http://www.boardsource.org/Knowledge.asp?ID =3.389 http://www.irs.gov/charities/charitable/article/0,,id=154667,00.html http://www.irs.gov/charities/charitable/article/0,,id=154667,00.html http://www.nonprofitrisk.org/advice/samples/Co nflictPolicy.doc http://www.nonprofitrisk.org/advice/samples/Co nflictPolicy.doc + http://www.lawmart.com/forms/fnp-tt09.htm