Missteps with compensation-setting and related-party transactions cost charity reported $5.5M

Posted by admin Latest News Tuesday, February 5th, 2013

Attorney Michael Peregrine’s January 14th article in the Chronicle of Philanthropy highlights the need for charities to implement stronger safeguards in handling matters related to conflicts of interest and compensation-setting.

Peregrine’s article explains how a prominent charity in New York City ended up with a $5.5 million price tag from the state attorney general’s office after some questionable financial relationships between the charity and a separate business owned by the charity’s leaders in addition to other problems with compensation-setting and a general lack of board oversight. Besides paying $1 million of the fines, the individuals serving as board members have lost the privilege of ever serving in a fiduciary role at any New York nonprofit for the rest of their lives.

Examples like these highlight the need for better board oversight among nonprofits in compensation-setting and related-party transactions. ECFA has recently taken a leadership role in these areas by announcing an enhancement to its standards. Effective January 1, 2014, the revised Standard 6 will include a new policy for excellence in compensation-setting and related-party transactions. Click here to visit ECFA’s page on the new standard and related commentary.

Source: The Chronicle of Philanthropy