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

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

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