College of DuPage has been in the news recently for all the wrong reasons. There are accusations that the college and its related foundation have given substantial business to board members without competitive bids and without disclosure under any sort of conflict of interest policy. The result is been that the college has been under scrutiny for its activities and it has diverted attention from its educational mission.
Every nonprofit is required under the Sarbanes-Oxley act to have a conflict of interest policy. A conflict of interest is a situation in which a board or staff member proposes to or has entered into a transaction with the organization for which the board member or staff member works. As the College of DuPage case shows, not having and following a conflict of interest policy can have devastating consequences.
The policy would first define who is covered. Any board member or staff member with the organization is required to disclose the transaction to the board or committee that would be affected by the transaction. The policy does not make a conflict of interest illegal. The policy is designed to force disclosure and full consideration by the Board or committee, so that the organization knows it is getting a fair deal.
The second step is for the board and any committees which would be affected by the proposed transaction to investigate whether it is fair to the organization. If a party to the transaction is on the board or the committee they cannot participate in the determination.
Finally, board members are required to disclose each year whether they are aware of any actual or proposed conflicts of interest. Board members are required to disclose any known actual or possible conflicts in writing. The organization should provide a form to the board members and staff for the disclosures.
The Internal Revenue Service has on its website a conflict of interest policy which is a good model to use. It is worded very broadly but with some minor changes could be used for many small and midsize organizations.
College of DuPage could have avoided significant problem by having a conflict of interest policy following. If you have a problem, sometimes calling in an outside party can help provide a resolution. Don’t let your organization fall into the same problems. If we can assist please give us a call.