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Another 501 (c) 3 question -- conflict of interest

 
 
sozobe
 
Reply Fri 10 Apr, 2009 10:31 am
I've mentioned before that I'm on the board of an organization that is going for non-profit status. I've been involved in the process of becoming a 501 (c) 3 before and it was a giant headache and I didn't want to do it this time, so the organization has hired someone to do it.

I know about him from way back and don't particularly trust him, but it's all second-hand -- what people have told me about him -- and I haven't had any direct dealings with him. I'm not the point person on this either, just have been asked for feedback at various points.

One thing he's done is to put an extensive "conflict of interest" section in our bylaws. We're just a humble little organization, and I don't think we'll ever have a budget of more than $10,000/ year at the most (I'd expect more like $5,000 or less most years). The conflict of interest stuff is really strict and complicated and seems like overkill to me.

One reason its pertinent is that there is a relatively small population of professional Deaf people in my area (it's a Deaf organization) and there is simply going to be a lot of overlap. For example, one of our sponsors is thinking of hiring me, and I am currently the president-elect (I'll be president next year) -- if they hire me, I can't be president? This is just one example of a whole lot of tangled interconnectedness.

Our current prez talked to the guy preparing the 501 (c) 3 and he said yeah, that'd likely be a problem. She's so discouraged (again, that is one example among many) that she thinks it would be easier to just forgo 501 (c) 3 status. A lot of people have wanted to donate to us and haven't because of the lack of non-profit status, though. Also there are grants that we qualify for that we can't apply for unless we're a non-profit.

My impression is that things don't have to be as strict as this guy has laid out. I'm going to start researching but I always get good advice from people here who know more about this off the top of your heads.

What I'm looking for is keeping things relatively informal and small -- not regulations up the wazoo -- while also qualifying for 501 (c) 3 status. Trying to find out what's required or not.

Hope that's all clear, lemme know if not.

Thanks!
 
View best answer, chosen by sozobe
Thomas
 
  1  
Reply Fri 10 Apr, 2009 02:38 pm
@sozobe,
sozobe wrote:
I've mentioned before that I'm on the board of an organization that is going for non-profit status.

U-oh ... I'm having a deja vu moment here. Not pretty! Have you learned nothing, woman, from your conference organizing a few years ago? (Sorry for the outburst, nothing constructive to say.)
sozobe
 
  1  
Reply Fri 10 Apr, 2009 02:43 pm
@Thomas,
Yes, that's part of why I refuse to have anything to do with THIS one going for 501 (c) 3 status!

I also shopped around a lot before finding a board I wanted to be on -- this one is much more modest in scale and doesn't really have any specific costs. If we make a profit, we donate some to the charity/ organization of our choice. If we don't make a profit, it's usually on the order of $100 or less in the hole -- and we have well over that in savings, (and usually recoup during our next event -- we have way more profitable events than unprofitable, and the unprofitable ones are usually worth it for PR if nothing else).
ehBeth
 
  1  
Reply Fri 10 Apr, 2009 02:55 pm
@sozobe,
sozobe wrote:
One thing he's done is to put an extensive "conflict of interest" section in our bylaws. We're just a humble little organization, and I don't think we'll ever have a budget of more than $10,000/ year at the most (I'd expect more like $5,000 or less most years). The conflict of interest stuff is really strict and complicated and seems like overkill to me.


Enron / Sarbanes-Oxley (SOx) has changed conflict of interest rules for everyone. The rules and the interpretation of the rules.

I've signed more conflict of interest documents in the past 12 - 18 months than I did in the 25+ previous years of working.

Things are clearly somewhat different in the U.S. than in Canada, but board president/member of the board of a small organization simply could not be an employee of a sponsoring organization here.

Things around conflict of interest have changed a lot in the last five or so years. Pain in the patoot.
sozobe
 
  1  
Reply Fri 10 Apr, 2009 02:59 pm
@ehBeth,
OK, that's helpful, thanks.

Maybe it's just too much trouble to take things to the next level. We've done fine for the last five years w/o non-profit status...

I'm also thinking of creating a spin-off organization for our more ambitious goals, and that one could be more focused and formalized...
sozobe
 
  1  
Reply Fri 10 Apr, 2009 03:11 pm
@sozobe,
This isn't conclusive but seems to indicate that if I were president and also an employee of a sponsoring organization, I would avoid a conflict of interest if I stayed out of any discussion having to do with the sponsoring organization. This isn't hard -- the relationship amounts to them paying us a certain fee to have their logo on our website. Perhaps "sponsoring organization" isn't the right term, just that they have bought ad space on our website? I don't know.

The point is though that it wouldn't be hard for me to just step out of the discussion of whether we want to allow them to have their logo up for another year, and abide by whatever the rest of the board decides.
sozobe
 
  1  
Reply Fri 10 Apr, 2009 03:14 pm
@sozobe,
Sample simple policy that the IRS accepted -- very doable for us I think:

Quote:
"We, the Directors of the Center for Wise Democracy, resolve that no member of the Board of Directors shall participate in any discussion or vote on any matter in which he or she or a member of his or her immediate family has potential conflict of interest due to having material economic involvement regarding the matter being discussed. When such a situation presents itself, the director must announce his or her potential conflict, disqualify himself or herself, and be excused from the meeting until discussion is over on the matter involved. The President of the meeting is expected to make inquiry if such conflict appears to exist and the board member has not made it known."


http://www.idealist.org/if/idealist/en/FAQ/QuestionViewer/default?section=16&item=59
sozobe
 
  1  
Reply Fri 10 Apr, 2009 03:31 pm
@sozobe,
More samples:

http://www.hurwitassociates.com/l_conflict.php

I'm starting to feel more optimistic -- please do step in (anyone) if you think I should remain pessimistic, and tell me why.
sozobe
 
  1  
Reply Fri 10 Apr, 2009 03:41 pm
@sozobe,
I'll group a few more:

Some good stuff here, especially re: spelling out what the consequences are if a conflict of interest policy is violated:

http://www.theisenbrock.com/index.php?section=113&item=19

A good breakdown of what should be included:

http://www.boardsource.org/Knowledge.asp?ID=3.389


And a general note, from a few sources -- another thing that has come up is whether I could do the grant writing and get paid if I'm on the board. I was assuming no, but that's actually more equivocal than I thought. It looks like if I don't advocate for myself at all and stay out of discussions, and the board takes bids from a variety of other grant writers, it's OK if they decide to contract with me. But still something to be very careful about and maybe avoid just to be on the safe side.
Thomas
 
  1  
Reply Fri 10 Apr, 2009 06:15 pm
@sozobe,
On reflection, maybe I do have six constructive words to say: "have you asked joefromchicago about this?"
0 Replies
 
sullyfish6
 
  1  
Reply Fri 10 Apr, 2009 06:31 pm
I was a CEO for a CHARITABLE, non profit 501(c)(3) for 10 years.

Your charitable organization is a stand- alone entity. It can be influenced by no other group, company or "sponsors". As a corporation, it is run by a board of directors who are all volunteers. Board members are usually not compensated. The agency has its own mission and support comes from memberships, grants and donations. Donations cannot be tied in with any "paid" program and there is no such thing as a "profit" in this kind of set-up, so I'm not sure i understand what you mean.

Programs must fit the mission of the organization. A professonal grantwriter can be paid, but that is usually not something that the president of the board usually does, anyway.
hamburger
 
  1  
Reply Fri 10 Apr, 2009 06:52 pm
@sozobe,
Quote:
maybe avoid just to be on the safe side.


even if YOU think it's all above board , another charitable organization or a for-profit-corporation (lost opportunity) might take offence .
just is not worth the possible trouble to mix any actual job - however small - while being on the board of that same not-for-profit organization .

i was on the board of a NFP (half-way house for provincial offenders) for many years managing their finances and training succesive book-keepers . aside from having christmas dinner with the houseguests - i made sure to not even take a pencil - brought my own .

you'd sleep better keeping any job-for-money apart from your work on the board .
best of luck !
hbg
0 Replies
 
sozobe
 
  1  
Reply Sat 11 Apr, 2009 06:34 am
@sullyfish6,
What I mean by "profit" is that the main thing we DO is hold social and educational events (workshops), and charge money for them. These events have the overall purpose of providing social opportunities for Deaf people (this might sound trivial but is actually very important, since most Deaf people live and work in hearing/ non-signing environments) with a special emphasis on providing role models and advice for Deaf and hard of hearing kids who are mainstreamed (attending hearing schools).

If a given event raises $500, say, we might give $250 of that to an organization that advocates for Deaf victims of domestic violence. We keep the rest for operating expenses, but nothing goes to members of the board.

Thomas, I'm hoping joefromchicago, Tico et al will happen across this one as they happened across my other recent question on this subject, if not I'll PM 'em.
0 Replies
 
joefromchicago
  Selected Answer
 
  4  
Reply Sat 11 Apr, 2009 08:55 am
A policy regarding conflicts of interest is a good idea, but you always need to keep in mind that such a policy is designed to help the non-profit, not to hamstring it. A conflict-of-interest policy, therefore, should be designed to protect the non-profit from people who, because of their ties to the organization, would take advantage of it. The policy should also be designed to reassure donors that the organization is looking out for its own best interests and won't become the vehicle for some unscrupulous member's own financial gain.

The policy, however, shouldn't do much more than that. In other words, the conflicts policy shouldn't hobble the organization or make it impossible to pursue its mission. In that regard, any conflicts policy should provide an option for the board to waive potential conflicts. The board should, of course, be fully informed of any conflict, and any interested board member should be barred from voting on any measure that raises a conflict, but apart from those precautions an organization shouldn't be prevented from entering into a contract or business relationship that has some elements of a conflict, as long as it knows what it's getting into and isn't unduly influenced by a conflicted organization member.
sozobe
 
  1  
Reply Sat 11 Apr, 2009 08:59 am
@joefromchicago,
That is EXTREMELY helpful, joe, thanks so much.
cicerone imposter
 
  1  
Reply Sat 11 Apr, 2009 02:33 pm
@sozobe,
Just don't vote on anything that seems/appears like conflict of interest. Otherwise, I say "go for it," including the non-profit status. It's about "fiduciary responsibilities."

What nonprofits need are good managers and board of directors.

BTW, board members can get liability insurance through their home owners insurance at reduced rates. That was the case when I worked for nonprofits.
0 Replies
 
joefromchicago
 
  1  
Reply Sat 11 Apr, 2009 04:25 pm
@sozobe,
sozobe wrote:

That is EXTREMELY helpful, joe, thanks so much.

Happy to be of assistance.
0 Replies
 
sullyfish6
 
  1  
Reply Mon 13 Apr, 2009 06:36 am
I am still confused as to WHO the "we" is that is putting on workshops and charging for them. That sounds like a company or agency.

So you have "left over" funds from this project that you give to a charity?

(Reminder - the board or agency cannot "make work for itself". As I said before, REVENUE for a charity comes from grants, donations and memberships.

Better your group just gives the money to an already established charity and just let workshop participants know that.

Please state your Mission statement that you submitted as a part of the 501 Application.
sozobe
 
  1  
Reply Mon 13 Apr, 2009 06:58 am
@sullyfish6,
We have a mission statement and I think it's a good one but I'd rather not post it 'cause it's too easy to Google. (It is on our website.)

I'll try to lay things out more thoroughly.

It's a Deaf organization. It started several years ago. It recently incorporated as part of the process towards becoming a 501 (c) 3 corporation.

One part of our mission is to provide socializing opportunities for Deaf people. Again, this may sound trivial but is not. Deaf people are frequently isolated amongst non-signing hearing people at home and at work. Having opportunities to socialize with other Deaf, signing people is really important.

Another part of the mission is providing educational activities for Deaf people, as separate from socializing opportunities. Economic workshops, health workshops, etc.

Another part is providing role models and mentoring to young Deaf people, especially those who are in a mainstream educational environment (mainstream = not a deaf school or institute, just a regular [hearing] school).

Another is to give money to worthy Deaf organizations/ charities in the area.

We usually have an event every month or two. Events include workshops, seasonal events, panels, etc.

We charge a fee for events but the fee is usually very low. We also waive fees for some people; for example we will have an event to which young Deaf people are invited (under 18) and they do not have to pay, while other people do.

For most events, our mission is included in the event itself (socializing and/ or education and/or mentoring), but we also take money raised from these events and donate it to a worthy organization that serves the Deaf.

In the future, we would like to create more specific programs -- like a specific 1-on-1 mentorship program pairing older and younger Deaf people -- and the fund-raising would go towards these internal programs as well as making donations to other organizations.

None of the money we raise goes to board members. They are all volunteers.

Aside from events, we make money from paid memberships, donations, and by selling ad space on our website.

I've been involved in several non-profits and fund-raising events are very much the norm. I really don't think that is illegal or problematic -- if you do, please point me to something specific (IRS regulations, etc.) since that would definitely require us to completely reconsider our plans.
0 Replies
 
sullyfish6
 
  1  
Reply Wed 15 Apr, 2009 06:26 am
Your Mission seems honorable. The only thing is that there should not be a charge for any "programs".

Providing FREE services to a specific population is the goal.

Your revenue to support your programs should come from donations, grants and memberships. You can'' be seen as conducting "business" (like any other agency or company) unless it is part of your programs.

For example, i know of a food cuboard/clothing closet that has a resale store attached to it. The public can buy low cost clothing, but screened "clients" get the clothes free. ALL proceeds must go back to the agency.
 

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