The Nonprofit Ethicist | Spring 2006

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Dear Nonprofit Ethicist,
I’m on the board of a church which designates a portion of its budget to be given out as grants to groups and projects whose social justice mission is consistent with that of the church. I’m also a member of the church’s grant committee which evaluates grant proposals. An ad-hoc team of church members has recently formed to create and deploy a new independent (non-church) Web site. The team includes one person with Internet and Web site technical experience, who is also a church member.

The team recently submitted a grant proposal for $10,000, with the entire amount of the grant budgeted to be paid, as Web site design and custom programming fees, to a Web consulting firm co-owned by the team member and church member who has Web technical experience. I also work in the Internet sector, and believe that it might be possible to obtain a similar set of Web site features and software for only $200/year from a variety of Internet Service Providers. Several members of the grant committee have a strong interest in seeing this new Web site established, and are upset at what is seen as my running interference in this Web site proposal. The Web team will probably not be able to function without the technical knowledge provided by the team member who also runs the consulting firm.

Is there a conflict of interest taking place within the Web site project team? What actions should the board take, or what ground rules should the board establish, either for the grants committee or for the Web project team? Our church presently has no written conflict of interest policy.

Dear Sleepless,

There is no way outsiders and insiders can compete for funding or contracts on equal footing. Your committee should not accept applications from members and others who attend regularly. If your church wants a new Web site, it should put out an RFP (Request for Proposals) and shop it around.

On a closely related management issue, it is clear to me that your committee is not getting enough detail or input to make an informed decision about cost relative to services and products provided. The best way to do that of course is to invite a number of proposals from providers and to check references on former clients’ results. At this level of payment I would strongly advise that this precautionary step be taken. I recommend sitting down with someone at a local foundation and get guidance on setting up a grantmaking process and training on how to evaluate proposals. You can also get such guidance from the Association of Small Foundations or the Council on Foundations.

Dear Nonprofit Ethicist,

I am the only American asked to serve on an international board of a hospital that meets in the host country three times a year, where the nonprofit exists, and once in a second country where the landowner of the nonprofit is registered. Presently the CEO is in conflict with a senior level administrator, both of whom serve as executive members of this board. The hospital pays my air fare to attend meetings. I feel that I would have greater freedom to speak if I paid for my own fare. However, it is a significant amount of money and would be difficult for me to do so. I would welcome your thoughts about what feels like a conflict of interest.

Dear Sojourner,

First, it is all right for you to be reimbursed for reasonable expenses incurred in the line of duty, even if it is a lot of money. Payment of expenses is quite different from a lavish stipend or, presumably from any situation where the implicit understanding is that you are to shut up and vote with the chair.

This assumes, of course, that you are worth the cost. Here is one way for you to figure out if you are worth the cost—ask yourself, “Am I prepared to speak freely, thoughtfully and objectively in a way that serves the best interests of those who are supposed to benefit from this hospital’s work?” That is your duty of loyalty. If you aren’t prepared to fulfill that duty, you should think twice about accepting their offer. Stand up for what is right and good no matter who pays the freight—and take your chances on being re-appointed.

You might consider whether or not the board is balanced enough to avoid the self interest of board members (staff people, landowner, etc.). It sounds as if you could be walking into a messy situation, but I imagine the board would benefit from some plain speaking, so do not be afraid to supply it.

Dear Nonprofit Ethicist,

Budgets have implications for audits and tax returns, so what are the ethics of counting time spent on grant writing by the executive director and senior managers toward “development/fundraising”? I have read and heard of different standards applied, but I am wondering if there is an established consensus within the field. Is it appropriate, for example, to distinguish time spent prospecting or writing grants for new funders vs. writing repeat applications for existing funders? Or does grantwriting even count within the arena of fundraising and development?

Dear Wondering,

Bless you. Too many people, even EDs, turn the numbers over to someone else and walk away from the associated ethics as well as the mechanics. Unfortunately, we aren’t licensed to dispense professional advice on the technical aspects of the issue. The best we can do is to refer you to FAS 117, promulgated by the Financial Accounting Standards Board, and SOP 98-2, issued by the American Institute of Certified Public Accountants, and recommend that you consult a professional accountant. Be forewarned: many rules are compromises between competing professional viewpoints, so do not be surprised if there is wiggle room in the rule’s interpretation.

Your question implies an awareness of public sentiment against organizations spending a high proportion of their income on management and fundraising. Indeed, it is likely that allocating overhead to fundraising will not be viewed favorably by the public, but this is precisely why you should do it. If you do not allocate fundraising costs appropriately, you risk misleading prospective donors. From an ethical point of view, if your accountant tells you that you have a choice, allocate your overhead costs to fundraising to reflect reality as you understand it, and do not flinch if the number is high. It seems to me that nonprofits would want to know what it costs to raise money, but you would be amazed at the number that don’t keep the records necessary to make a credible calculation. You might want to take a look at your accounting systems.

Woods Bowman is associate professor, Graduate Program in Public Services, DePaul University.