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New 990 Return: Conflict of Interest Policy

April 2008
By: Anne O'Connor
Beginning in 2009 every Pregnancy Resource Center/Clinic will be required by the Internal Revenue Service to file a new revised Form 990-Informational Tax Return. NIFLA wants to prepare you for what new items will be required on this return.

The IRS is now inquiring about whether non-profit tax-exempt entities have adopted a Conflict of Interest Policy to ensure that charitable funds are not being used for anyone's private gain. The IRS makes this inquiry on the application for tax-exemption, Form 1023, and now on the new annual reporting Form 990.

You will have to advise the IRS on Form 990 whether or not your organization has a policy on conflict of interest. If it does not, you may be tagged for an audit. Thus, if you do not have such a policy, your board should immediately adopt one before you complete and file Form 990 in 2008.

Below is a sample policy created by the IRS, which NIFLA has conformed for Pregnancy Help Centers. NIFLA urges your Board to adopt this policy as soon as possible.

Sample Conflict of Interest Policy
(Conformed from the Internal Revenue Service sample policy)
Article I
Purpose
The purpose of the conflict of interest policy is to protect the Pregnancy Resource Center's ("Center") 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 Person

Any 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.

2. Financial Interest

A person has a financial interest if the person has, directly or indirectly, through business, investment, or family:

An ownership or investment interest in any entity with which the Center has a transaction or arrangement.
A compensation arrangement with the Center or with any entity or individual with which the Center has a transaction or arrangement, or
A potential ownership or investment interest in, or compensation arrangement with any entity or individual with which the Center 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

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.
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.
After exercising due diligence, the governing board or committee shall determine whether the Center 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.
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

It 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.
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:

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 board's or committee's decision as to whether a conflict of interest in fact existed.
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 voting member of the governing board who receives compensation, directly or indirectly, from the Center for services is precluded from voting on matters pertaining to that member's compensation.
A voting member of any committee whose jurisdiction includes compensation matters and who receives compensation, directly or indirectly, from the Center for services is precluded from voting on matters pertaining to that member's compensation.
No voting member of the governing board or any committee whose jurisdiction includes compensation matters and who receives compensation, directly or indirectly, from the Center, either individually or collectively, is prohibited from providing information to any committee regarding compensation.
Article VI
Annual Statements
Each board member, executive director, and member of a committee with governing board-delegated powers shall annually sign a statement that affirms such person

Has received a copy of the conflicts of interest policy,
Has read and understands the policy,
Has agreed to comply with the policy, and
Understands the Center is charitable and in order to maintain its federal tax exemption, it must engage primarily in activities that accomplish one or more of its tax-exempt purposes.
Article VII
Periodic Reviews
To ensure the Center 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:

Whether compensation arrangements and benefits are reasonable, based on competent survey information, and the result of arm's length bargaining.
Whether partnerships, joint ventures, and arrangements with management organizations conform to the Center's written policies, are properly recorded, reflect reasonable investment or payments for goods and services, further charitable purposes and do not result in inurement, 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 Center 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.


Anne O'Connor is the general counsel for National Institute of Family and Life Advocates (NIFLA). For more information, go to www.nifla.org

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