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Why nonprofits should be careful about doing business with board members

Posted Jan 30, 2017

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Your not-for-profit’s board members may be able to offer access to better deals or services than your organization could get on its own. However, there’s a fine line between a board member helping your nonprofit get fair pricing and the member receiving perceived or actual personal benefits. The latter can threaten your exempt status.

Best practices

A fictional example can help illustrate what nonprofits should do in such circumstances:

A charity needs a printer to produce programs for its annual gala. One of the organization’s board members owns a printing company. He’s eager to have his company considered for the work because he knows it can do the job well and pass along savings.

To avoid problems, the charity puts its project out to bid with several printing vendors, including the board member’s. All are supplied with identical specifications and receive the same amount of time to reply. In other words, the bidding process provides a level playing field. After weighing the merits of all bids received, the board selects the vendor that can best meet the charity’s needs. The printer recuses himself from any discussion and vote so he doesn’t put undue pressure on his colleagues.

Put it in writing

The competitive selection process outlined above is only the first step. To avoid the appearance that there’s a conflict of interest, you’ll need to draw up a contract that includes:

• The service the vendor has agreed to provide,
• Specific deliverables,
• A timeframe for delivering materials or services, and

• All cost estimates.

Unfortunately, even when you’ve followed these guidelines, some arrangements will nevertheless give the appearance of a conflict. Your board, therefore, needs to keep detailed notes of all discussions and decisions that went into business arrangements.

Create a policy

Of course, the best way to keep conflicts of interest from ever arising is with a solid conflict-of-interest policy. Your policy should outline what is and isn’t permissible and spell out any exceptions to the rules. For more information, please contact us.

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