Saturday, January 07, 2012

Self-dealing and nonprofit boards.....DON'T do it

Nonprofits are governed by the Non-Distribution Constraint .....meaning that board members cannot materially benefit from the operations of the organization. So do your conflict of interest policies explicitly state that Board Members cannot do business in any shape or form with the organization? Board Members can't be your landlord, they can't be your consultant they can't be your supplier.

I know some will say that there are legal exemptions....and there are. However, you're taking a gigantic risk. First, it's the appearance of impropriety , which is often worse than the act itself. Your reputation with the public matters. A small slip can cause lasting damage.

It's a GIANT Red Flag
Another reason is that it waves a red flag in the face of the IRS. With over 500 new agents involved in the nonprofit division they have a lot more resources to get into your business. Once you are on their radar you'll spend lots of time, energy and money dealing with them. Why give them a reason.
Finally, don't do it because it's just not right. Your Board members should be serving in order to help advance your mission. Business dealing change the nature of the relationship between the Board member and the organization. It also puts one on a slippery slope that can lead to more fraudulent activities.

1 comment:

Anonymous said...

Another handy tip for avoiding scrutiny by the IRS. Thank you!