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Nonprofit Compliance 

Nonprofit Conflict of Interest Policy

Lenora Williams: Posted on Tuesday, September 06, 2011 1:45 AM

IRS Instructions for Form 1023 - Additional Material on Conflict of Interest

IRS Nonprofit Conflict of Interest DETAIL as follows:

(Scroll down for a SUMMARY and sample “Conflict of Interest Policies”)

"Appendix A: Sample Conflict of Interest PolicyNote: Items marked Hospital insert - for hospitals that complete Schedule C are intended to be adopted by hospitals.

Article I Purpose

The purpose of the conflict of interest policy is to protect this tax-exempt organization's (Organization) interest when it is contemplating entering into a transaction or arrangement that might benefit the private interest of an officer or director of the Organization or might result in a possible excess benefit transaction. This policy is intended to supplement but not replace any applicable state and federal laws governing conflict of interest applicable to nonprofit and charitable organizations.

Article II Definitions

1. Interested PersonAny director, principal officer, or member of a committee with governing board delegated powers, who has a direct or indirect financial interest, as defined below, is an interested person.

[Hospital Insert - for hospitals that complete Schedule C

If a person is an interested person with respect to any entity in the health care system of which the organization is a part, he or she is an interested person with respect to all entities in the health care system.]

2. Financial InterestA 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 the Organization has a transaction or arrangement,

b. A compensation arrangement with the Organization or with any entity or individual with which the Organization has a transaction or arrangement, or

c. A potential ownership or investment interest in, or compensation arrangement with, any entity or individual with which the Organization 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 2, a person who has a financial interest may have a conflict of interest only if the appropriate governing board or committee decides that a conflict of interest exists.

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 the Organization 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 the Organization'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:

a. The names of the persons who disclosed or otherwise were found to have a financial interest in connection with an actual or possible conflict of interest, the nature of the financial interest, any action taken to determine whether a conflict of interest was present, and the governing boards or committee's decision as to whether a conflict of interest in fact existed.

b. The names of the persons who were present for discussions and votes relating to the transaction or arrangement, the content of the discussion, including any alternatives to the proposed transaction or arrangement, and a record of any votes taken in connection with the proceedings.

Article V Compensation

a. A voting member of the governing board who receives compensation, directly or indirectly, from the Organization for services is precluded from voting on matters pertaining to that member's compensation.

b. A voting member of any committee whose jurisdiction includes compensation matters and who receives compensation, directly or indirectly, from the Organization for services is precluded from voting on matters pertaining to that member's compensation.

c. No voting member of the governing board or any committee whose jurisdiction includes compensation matters and who receives compensation, directly or indirectly, from the Organization, either individually or collectively, is prohibited from providing information to any committee regarding compensation. [Hospital Insert - for hospitals that complete Schedule C

d. Physicians who receive compensation from the Organization, whether directly or indirectly or as employees or independent contractors, are precluded from membership on any committee whose jurisdiction includes compensation matters. No physician, either individually or collectively, is prohibited from providing information to any committee regarding physician 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 the Organization is charitable and in order to maintain its federal tax exemption it must engage primarily in activities which accomplish one or more of its tax-exempt purposes.

Article VII Periodic Reviews

To ensure the Organization 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 the Organization's written policies, are properly recorded, reflect reasonable investment or payments for goods and services, further charitable purposes and do not result in increment, 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, the Organization 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."


All nonprofits as required by the new 990 process, must have a written conflict of interest policy and a process for managing conflicts.

Some Sample Conflict of Interest Policies and Implementation Process: (this information is available to you online – I and others have consolidated the information for easy access) ·

The National Council of Nonprofits offers a sample policy at the following web site:·

A sample conflict of interest policy is contained in The AICPA Audit Committee Toolkit. (American Institute of Certified Public Accountants, 2005·

A sample policy from the conflict of interest policy developed by the Minnesota Council of Nonprofit Organizations is from the Minnesota Attorney General's Office web site, the link below is the sample policy.

Office of Inspector General (OIG) 7 Elements of a Compliance Program

Posted on Monday, November 14, 2011 1:10 AM

OIG 7 Elements of a Corporate Compliance Program

Comprehensive compliance programs at a minimum should include the following seven elements:

1. Written standards of conduct, as well as written policies and procedures

2. Designation of a Chief Compliance Officer and/or Corporate Compliance Committee

3. Effective education and training programs

4. Hotline to receive complaints and to protect whistle blowers from retaliation

5. System to respond to allegations of improper and/or illegal activities and the enforcement of appropriate disciplinary action

6. Audits to monitor compliance

7. Investigation and remediation of identified systemic problems and the development of policies

Read .... OIG compliance guideline;

Nonprofit Integrity Act of 2004

CA Government Charities Publication: Posted on Sunday, July 31, 2011 4:37 PM

Nonprofit Integrity Act of 2004 -- Must Know!!!


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Nonprofit sample compliance program

Posted on Friday, May 27, 2011 3:31 PM

Nonprofit sample compliance program (as developed more specifically and in much more detail for Asian Americans for Community Involvement, AACI and shared with California Primary Care Association for distribution to all association members,5/25/2011) Blog

2 compliance organizations that certify individuals in


• HCCA – Health Care Compliance Association

• SCCE -- Society of Corporate Compliance & Ethics

• Instead of having a lead Compliance officer form a Compliance Committee

• The Compliance committee can meet routinely; monthly, quarterly, or every two months and could be staffed by a staff person who records the meeting

The Commpliance Committee should report to the nonprofit's Board of Directors

Committee purpose could be to:

· Identify & address agency compliance issues

• Compile compliance issues and group them in terms of urgency

• Provide compliance training for the board of directors, employees and vendors with possible access to confidential patient records (i.e. janitors, alarm system installers, locksmiths, etc.)

• Develop security plans to protect patient records

• Review and address hotline reported concerns

Internal Audits to find out what compliance issues are lurking and embedded in routine process

and procedures:

• Have a lead department in charge of internal audits for consistency example, Finance Department

Conduct the following:

• Quarterly reviews

• Audit of all programs


• Review audit results with program managers/directors and CEO

• Mutually decide due dates for corrective actions and follow-up reviews

Top 14 Internal Control Summary

1 Federal/State Contracts

2 Fraud Prevention

3 Service Account Codes

4 Revenue Codes

5 Separation of Coding/Billing

6 Record Retention

7 Red Flag Rule: Identity Theft

8 Client/Patient Insurance File

9 Cash: Separation of Duties

10 Cash: Storage Safety

11 Cash: Reconciliation

12 Billing: Accuracy

13 Accounting: Cash Receipt

14 Accounting: Month End Reconciliation

For more information on how to design internal audit reviews go

to our website http://www.Williamsllnonprofitcorner and fill out our contact us form or....

How costly is compliance for nonprofits?

Lenora Williams: Posted on Monday, July 04, 2011 2:08 AM

How are nonprofit agencies doing with adhering to the new federal compliance laws and regulations, like; HIPPA, Red flag, E H R implementation, form 5500 for 403B retirement plans, new form 990s...? What are some of your best practices? How are you dealing with the cost associated with designing a good whistle blower policy? Is nonprofit compliance with the growing number of new federal regulations even possible in our current economy?

Nonprofits are being asked to have a deeper accountability by funders for every dollar donated and fee for service income streams are not as plentiful as in past years.

When it comes to nonprofits and compliance new fiscal concerns are surfacing. The new federal compliance regulations are no longer isolated and centralized to privately owned and publicly traded corporations. Nonprofits in past years have been less scrutinized as corporations but are now being held to standards similar to publicly traded companies. Nonprofits are now being held responsible for greater internal controls and the consequences for not having these controls in place can be significant. Noncompliance can result in program shut down during investigation periods, loss of revenue, financial penalties and in some cases criminal investigations and charges. The federal department of Labor (DOL) investigations have begun to target nonprofit boards,CEOs, COOs and CFOs for not complying with newly created federal regulations.

The nonprofit health care industry has good examples of increased cost associated with new compliance regulations. Expensive E H R(electronic health record) systems for compliance purposes are required for community health centers with implementation dates as early as 2015, “Starting in 2015, hospitals and doctors will be subject to financial penalties under Medicare if they are not using electronic healthrecords” some funding for E H R systems for nonprofit health care centers was identified by the Obama administration, it is not enough. Where are the additional funds to pay for EHR? Who will fund productivity loss while the medical staff is learning the new EHR software and hardware systems? Who takes care of the patients during the learning phase and if you hire temporary staff, who pays for their time? Government grants were made available to a select group of nonprofit health care centers. The health centers that did not fit the criterion for the above funding applied for available low interest loans to be paid back from their dwindling revenue sources over time. E H R is closely tied to new HIPPA and Red Flag patient privacy regulations.

Nonprofit compliance cost are escalating - It cost to keep up with the new laws, it cost to create policies consistent with new regulations, it cost to enforce the new regulations and it cost to educate staff and the board of directors on their changing fiduciary roles. It is impossible to ignore the possibility of severe consequences for noncompliance; fiscal consequences in terms of penalties assessed and possible criminal consequences for not putting in safeguards to protect against and prevent fraudulent activity from occurring.

Conflict of Interest Policy - Gift Policy and Disclosure Form

Lenora Williams: Posted on Monday, February 03, 2014 4:07 PM


(This policy should be used in conjunction with a Conflict of Interest Policy)

As part of its conflict of interest policy, “The Nonprofit Named” requires that directors, officers and employees decline to accept certain gifts, consideration or remuneration from individuals or companies that seek to do business with “The Nonprofit Named” or are a competitor of it. This policy and disclosure form is intended to implement that prohibition on gifts.

Section 1. Responsible Person is any person serving as an officer, employee or a

member of the board of directors of “The Nonprofit Named”.

Section 2. Family Member is a spouse, domestic partner, parent, child or spouse of

a child, or a brother, sister, or spouse of a brother or sister, of a Responsible Person.

Section 3. Contract or Transaction is any agreement or relationship involving the

sale or purchase of goods, services or rights of any kind, receipt of a loan

or grant, or the establishment of any other pecuniary relationship. The making of a gift to “The Nonprofit Named” is not a “contract” or “transaction.”

Section 4. Prohibited gifts, gratuities and entertainment - Except as approved by the

Chairman of the Board or his designee or for gifts of a value less than $50

which could not be refused without discourtesy, no Responsible Person or

Family Member shall accept gifts, entertainment or other favors from any

person or entity which:

1. Does or seeks to do business with “The Nonprofit Named” or,

2. Does or seeks to compete with “The Nonprofit Named” or,

3. Has received, is receiving, or is seeking to receive a Contract or

Transaction with “The Nonprofit Named”.

Attny Tom Silk-CompassPoint Nonprofit Document Retention policy

Tom Silk: Posted on Tuesday, November 08, 2011 12:19 AM

Model Document Retention Policy for Nonprofits

Nationally recognized nonprofit attorney Tom Silk wrote this Model Document Retention Policy on a pro bono basis for CompassPoint Nonprofit Services to use and to make available for all nonprofits.

(For each document, add its location or where it is stored)

Accounts payable ledgers and schedules: 10 years

Accounts receivable ledgers and schedules: 10 years

Audit reports of accountants: Permanently

Bank statements: 10 years

Capital stock and bond records: A ledgers, transfer payments, stubs showing issues, record of interest coupon,options, etc.: Permanently

Cash books: 10 years

Checks (canceled, with exception below): 10 years

Checks (canceled, for important payments; i.e., taxes, purchase of property, special contracts, etc. [checks should be filed with the papers pertaining to the underlying

transaction]): Permanently

Contracts and leases (expired): 10 years

Contracts and leases still in effect: Permanently

Correspondence, general: 4 years

Correspondence (legal and important matters): Permanently

Depreciation schedules: 10 years

Donation records of endowment funds and of significant restricted funds: Permanently

Donation records, other: 10 years

Note: Donation records include a written agreement between the donor and the charity with regard to any contribution, an email communication or notes of or recordings of an oral discussion between the charity and the donor where the representative of the charity made representations to the donor with regard to the contribution on which the donor may have relied in making the gift.

Duplicate deposit slips: 10 years

Employee personnel records (after termination): 7 years

Employment applications: 3 years

Expense analysis and expense distribution schedules (includes allowance and reimbursement of employees, officers, etc.,for travel and other expenses: 10 years

Financial statements(end-of-year): Permanently

General ledgers and end-of-year statements: Permanently

Insurance policies (expired): Permanently

Insurance records, current accident reports, claims, policies, etc.: Permanently

Internal reports, miscellaneous: 3 years

Inventories of products,materials, supplies: 10 years

Invoices to customers: 10 years

Invoices from vendors: 10 years

Journals: 10 years

Minute books of Board of directors, including Bylaws and Articles of Incorporation: Permanently

Payroll records and summaries,including payments to pensioners: 10years

Purchase orders: 3 years

Sales records: 10 years

Scrap and salvage records: 10 years

Subsidiary ledgers: 10 years

Tax returns and worksheets,revenue agent reports, and other documents relating to determination of tax liability: Permanently

Time sheets and cards: 10 years

Voucher register and schedules: 10 years

Volunteer records: 3 years”

Please note: If you are under investigation the above guidelines do not apply.

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