Copyright © 2002, United States Conference of Catholic Bishops, Inc. All rights reserved.
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XVII. Related Parties -- Conflict of
Although written conflict of interest policies cannot prevent illegal or unethical behavior, they can establish expectations and create a proper control environment. The following guidelines for the conflict of interest policy should be considered.
This issue should be addressed by all diocesan organizations, commissions, committees, etc. A sample diocesan conflict of interest/private inurement policy is provided. This sample policy is not a substitute for specific legal advice. Accordingly, consultation with diocesan legal counsel should be sought prior to adoption of a particular conflicts policy and when questions arise concerning its implementation.
- Dealings with the diocese that could appear to have dual interests or a conflict of interest should be evaluated closely (e.g., transactions with entities which a diocesan employee has a direct or indirect financial interest, or support provided to other organizations in which a member of a board is directly associated). In the interest of full and open disclosure, any such dealings should be disclosed to the bishop.
- On a periodic basis, all personnel should be required to provide a written acknowledgment of compliance with the conflict of interest policy and should indicate such conflicts of interest.
- Whether a matter is of significant importance to constitute a conflict of interest should be left to the discretion of the bishop.
Diocesan Conflicts of Interest/Purpose
Private Inurements Policy—Sample
The purpose of this conflicts of interest and private inurements policy is to protect the diocese's interest when it is contemplating entering into a transaction or arrangement that might benefit the interests of private individuals, including but not limited to employees and individuals performing work on behalf of the diocese and other persons in a position to influence the affairs of the diocese. This policy is intended to supplement but not replace any applicable state laws governing conflicts of interest applicable to non-profit and charitable corporations. This policy should be distributed to existing and future executives, officers, trustees, directors, and members of advisory boards and committees.
Non-profit charitable, religious, and educational organizations obtain their tax-exempt status under the theory that they perform valuable services for society and lessen the burdens of government. If a tax-exempt organization allows its money or other property to be used for private rather than public gain (i.e., for "private inurement" or "private benefit"), then it risks losing its exemption. In addition, under recently adopted "intermediate sanctions" provisions of the Internal Revenue Code, "disqualified persons" such as CEOs, CFOs, board members, major donors doing work for the diocese, etc., who receive "excess benefits" are subject to an excise tax ranging from 25% to 200%, depending on the circumstances. Furthermore, any organizational manager who knowingly facilitates such an excess benefit is subject to a 10% tax. In light of these IRS restrictions and, more importantly, in order to assist the diocese in fulfilling its responsibilities to act as a competent and trustworthy steward of church goods, the diocese has developed this policy.
Identifying a Private Inurement or Private Benefit Problem
In brief, "private inurement" is the payment or diversion of an exempt organization's assets to its officers, directors, employees, relatives, friends, major donors, or others in a special relationship to the organization who can influence or control the policy or the day-to-day activities of the organization for less than full and adequate consideration. It is a broad concept that can exist in a variety of transactions under a variety of circumstances. Private inurement also extends to the use of organizational assets for "private benefits" such as sales, leasing, construction contracts, service transactions, etc., at other than fair market value or the exploitation of the exempt organization for the benefit of a private business (e.g., "sweetheart deals," promotional schemes, and/or giveaways to private individuals or businesses). Thus, under IRS regulations, a private benefit is similar to, but broader than, private inurement.
To avoid the conferment of material private inurements or benefits in the types of transactions described above, the particular diocesan parish, school, or agency must enter into transactions for its benefit, rather than for a private party's benefit, and exercise due diligence to ensure that the proposed transaction is fair and reasonable such that under the circumstances the organization could not have obtained a more advantageous arrangement with reasonable effort. In addition to screening proposed transactions through the applicable corporate boards, parish/school advisory boards, and committees, etc., care should be taken to follow diocesan policies and procedures pertaining to the signing of contracts. For example, parish and school administrators may not execute contracts in excess of $10,000 in amount and/or one year in duration. These must be submitted to the Chancery. They must be reviewed by diocesan legal counsel and signed by the applicable corporate officers at the Chancery. Additional procedures apply in connection with contract bids for building construction, renovation and repair projects.
Conflicts of InterestA conflict of interest can exist when persons employed by the "diocese" (i.e., the Chancery, parishes, schools, diocesan agencies, and/or affiliated corporate entities), those volunteers of the diocese holding trusteeships or other governance authority, or those serving on advisory or consultative boards or committees have a direct or indirect financial interest, as defined below.
A person has a "financial interest" if the person has, directly or indirectly, through business, investment, or family (including spouses; brothers or sisters; spouses of brothers or sisters; ancestors; children, grandchildren, and great grandchildren; and spouses of children, grandchildren, and great grandchildren), any one of the following:
Compensation includes direct and indirect remuneration as well as gifts or favors that are substantial in nature.
- An ownership or investment interest in any entity with which the diocese has a transaction or arrangement
- A compensation arrangement with the diocese or with any entity or individual with whom the diocese has a transaction or arrangement
- A potential ownership or investment interest with, or compensation arrangement with, any entity or individual with whom the diocese is negotiating a transaction or arrangement
Duty to Disclose
In connection with any actual or possible conflict of interest, an interested person must disclose the existence and nature of his or her financial interest and all material facts to the applicable board, committee, or corporate officer (i.e., vicar/attorney-in-fact).
Determining Whether a Conflict of Interest Exists
After disclosure of the financial interest and all the material facts, and after any discussions with the interested person, that person shall leave the applicable meeting while the determination of a conflict of interest is discussed and voted upon.
Procedures for Addressing the Conflict of Interest
Violation of the Conflict of Interest Policy
- An interested person may make a presentation at the applicable meeting; but after such presentation, he or she shall leave the meeting during the discussion of, and vote on, the transaction or arrangement that results in the conflict of interest.
- The chairperson of the board or committee and/or corporate officer shall, if appropriate, appoint a disinterested person or committee to investigate alternatives to the proposed transaction or arrangement.
- After exercising due diligence, the board, committee, or corporate officer shall determine whether the organization can obtain a more advantageous transaction or arrangement with reasonable efforts from a person or entity that will not give rise to a conflict of interest.
- If a more advantageous transaction or arrangement is not reasonably obtainable under circumstances that would not give rise to a conflict of interest, the board, committee, or corporate officer shall determine by a majority vote of the disinterested board or committee members whether the transaction or arrangement is in the organization's best interest and for its own benefit and whether the transaction is fair and reasonable to the organization, and it shall make its decision as to whether to enter into the transaction or arrangement in conformity with such determination.
Subsequent Conflicts and Disclosures
- If the board, committee, or corporate officer has reasonable cause to believe that an interested person has failed to disclose actual or possible conflicts of interest, it shall inform the individual of the basis for such belief and afford the person an opportunity to explain the alleged failure to disclose.
- If, after hearing the response of the person and making such further investigation as may be warranted under the circumstances, the board, committee, or corporate officer determines that the individual has in fact failed to disclose an actual or possible conflict of interest, it shall take appropriate disciplinary and corrective action.
Notwithstanding previous disclosure of actual or potential conflicts of interest, an individual shall make a new disclosure of conflicts when any matter involving the conflict of interest arises for discussion or action. In the event that an individual is uncertain whether an actual or potential conflict of interest exists, the individual should make disclosure of the circumstances that may give rise to an actual or potential conflict.
Confidential or Privileged InformationInformation known to be confidential that is acquired by individuals in the course of employment or association with the diocese and its affiliated entities shall be used only for the benefit and purposes of the diocese. Individuals shall neither disclose confidential information outside the scope of their authorized duties nor utilize their position or association with the diocese for personal identification or advantage, although there may be instances, based on the use of careful discretion and judgment, where incidental use of the association with the diocese may be appropriate.