Conflict of Interest
Charitable organizations are frequently subject to
intense public scrutiny, especially where they appear to have inappropriately
benefited their officers, directors, or trustees. The
IRS also has an oversight role with respect to charitable organizations. An important part of this oversight is providing
organizations with strategies that will help avoid the appearance or actuality
of private benefit to individuals who are in a position of substantial
authority. The recommended conflict of
interest policy is a strategy we encourage organizations to adopt as a means to
establish procedures that will offer protection against charges of impropriety
involving officers, directors, or trustees.
A conflict of interest occurs where individuals’
obligation to further ISPA’s charitable purposes is at odds with their own
financial interests. For example, a conflict of
interest would occur where an officer, director, or trustee votes on a contract
between ISPA and a business that is owned by the officer, director or trustee. Conflicts of interest frequently arise when setting
compensation or benefits for officers, directors, or trustees.
A conflict of interest policy is intended to help ensure that when
actual or potential conflicts of interest arise, ISPA has a process in place
under which the affected individual will advise the governing body about all
the relevant facts concerning the situation. A
conflict of interest policy is also intended to establish procedures under
which individuals who have a conflict of interest will be excused from voting
on such matters.
Apart from
any appearance of impropriety, organizations will lose their tax exempt status
unless they operate in a manner consistent with their charitable purposes. Serving
private interests more than insubstantially is inconsistent with accomplishing
charitable purposes. For example, paying an
individual who is in a position of substantial authority excessive compensation
serves a private interest. Providing facilities,
goods, or services to an individual who is in a position of substantial
authority also serves a private interest unless the benefits are part of a
reasonable compensation arrangement or they are available to the public on
equal terms and conditions.
ISPA Proposed Conflict Of Interest Policy 13
July 2006
Article I
Purpose
The purpose of the conflict of interest policy is to protect
the tax-exempt interest of ISPA when it is contemplating entering into a
transaction or arrangement that might benefit the private interest of an
officer or director of ISPA or might result in a possible excess benefit
transaction. This policy is intended to supplement but not replace any
applicable laws governing conflict of interest applicable to nonprofit and
charitable organizations.
Article II
Definitions
1.
Interested Person
Any director, principal officer, or
member of a committee with governing or delegated powers, who has a direct or
indirect financial interest, is an interested person.
A person has a financial interest if
the person has, directly or indirectly, through business, investment, or
family:
a. An ownership or investment interest in any entity
with which ISPA has a transaction or arrangement,
b. A compensation arrangement with ISPA or with any
entity or individual with which ISPA has a transaction or arrangement, or
c. A potential ownership or investment interest in, or
compensation arrangement with, any entity or individual with which ISPA is
negotiating a transaction or arrangement.
Compensation includes direct and
indirect remuneration as well as gifts or favors that are not insubstantial.
A financial interest is not
necessarily a conflict of interest. Under Article III, Section
Article III
Procedures
1. Duty
to Disclose
In connection with any actual or possible conflict of interest,
an interested person must disclose the existence of the financial interest and
be given the opportunity to disclose all material facts to the directors and
members of committees with governing board delegated powers considering the
proposed transaction or arrangement.
2. Determining
Whether a Conflict of Interest Exists
After disclosure of the financial interest and all material
facts, and after any discussion with the interested person, he/she shall leave
the governing board or committee meeting while the determination of a conflict
of interest is discussed and voted upon. The remaining board or committee
members shall decide if a conflict of interest exists.
3.
Procedures for Addressing the Conflict of Interest
a. An interested person may make a presentation at the governing board or
committee meeting, but after the presentation, he/she shall leave the meeting
during the discussion of, and the vote on, the transaction or arrangement
involving the possible conflict of interest.
b. The chairperson of the governing board or committee shall, if
appropriate, appoint a disinterested person or committee to investigate
alternatives to the proposed transaction or arrangement.
c. After exercising due diligence, the governing board
or committee shall determine whether ISPA can obtain with reasonable efforts a
more advantageous transaction or arrangement from a person or entity that would
not give rise to a conflict of interest.
d.
If a more advantageous transaction or arrangement is not reasonably possible
under circumstances not producing a conflict of interest, the governing board
or committee shall determine by a majority vote of the disinterested directors
whether the transaction or arrangement is in ISPA's best interest, for its own
benefit, and whether it is fair and reasonable. In conformity with the above
determination it shall make its decision as to whether to enter into the
transaction or arrangement.
4. Violations
of the Conflicts of Interest Policy
a.
If the governing board or committee has reasonable cause to believe a member
has failed to disclose actual or possible conflicts of interest, it shall
inform the member of the basis for such belief and afford the member an
opportunity to explain the alleged failure to disclose.
b.
If, after hearing the member's response and after making further investigation
as warranted by the circumstances, the governing board or committee determines
the member has failed to disclose an actual or possible conflict of interest,
it shall take appropriate disciplinary and corrective action.
Article IV
Records of Proceedings
The
minutes of the governing board and all committees with board delegated powers
shall contain:
Article V
Compensation
Article VI
Annual Statements
Each director, principal officer
and member of a committee with governing board delegated powers shall annually
sign a statement which affirms such person:
a.
Has received a copy of the conflicts of interest policy,
b.
Has read and understands the policy,
c.
Has agreed to comply with the policy, and
d.
Understands ISPA is charitable and in order to maintain its
tax exemption it must engage primarily in activities which accomplish one or
more of its tax-exempt purposes.
Article VII
Periodic Reviews
To ensure ISPA operates in a manner consistent with
charitable purposes and does not engage in activities that could jeopardize its
tax-exempt status, periodic reviews shall be conducted. The periodic reviews
shall, at a minimum, include the following subjects:
a.
Whether compensation arrangements and benefits are
reasonable, based on competent survey information, and
the result of arm's length bargaining.
b.
Whether partnerships, joint ventures, and arrangements with
management organizations conform to ISPA's written policies, are properly
recorded, reflect reasonable investment or payments for goods and services,
further charitable purposes and do not result in impermissible private benefit or in an excess benefit transaction.
Article VIII
Use of Outside Experts
When conducting the periodic reviews
as provided for in Article VII, ISPA may, but need not, use outside advisors.
If outside experts are used, their use shall not relieve the governing board of
its responsibility for ensuring periodic reviews are conducted.
The
above was developed with the intent of complying with the