NORWICH FREE ACADEMY
CONFLICT OF INTEREST POLICY
ARTICLE 1 – PURPOSE
The purpose of the conflict of interest policy is to protect The Norwich Free Academy (“NFA” or “the School”) and its interest when it is contemplating entering into a transaction or arrangement that might benefit the private interest of an officer, member of the Board of Trustees (“Trustee”), member of the Administration of the School, 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 and provisions in the School’s Bylaws.
ARTICLE II – DEFINITIONS
1. Interested Person
Any Trustee, officer, member of the Administration, 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.
If a person is an interested person with respect to any affiliate of NFA, he or she is an interested person with respect to all affiliates.
2. Financial Interest
A person has a financial interest if the person has, directly or indirectly, through business, investment or family:
a. An ownership or investment interest in any entity with which NFA has a transaction or arrangement,
b. A compensation arrangement with NFA or with any entity or individual with which NFA has a transaction or arrangement, or
c. A potential ownership or investment interest in, or compensation arrangement with, any entity or individual with which NFA 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 will be deemed to 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 Trustees and members of committees with governing board delegated powers or others 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
a. 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, alternatives to the proposed transaction or arrangement.
b. 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.
c. After exercising due diligence, the governing board or committee shall determine whether NFA 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.
d. If a more advantageous transaction or arrangement under circumstances not producing a conflict of interest is not reasonably possible, the governing board or committee shall determine by a majority vote of the disinterested Trustees whether the transaction or arrangement is in NFA’s best interest, for its own benefit, and whether it is fair and reasonable. In conformity with the above determination it shall decide whether to enter into the transaction or arrangement.
4. Violations of the Conflict of Interest Policy
a. If 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.
b. If, after hearing the member’s response and making further investigations 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:
1. 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 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.
2. The names of the persons who were present for discussions and votes related 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
1. A voting member of the governing board who receives compensation, directly or indirectly, from NFA for services is precluded from voting on matters pertaining to that member’s compensation.
2. A voting member of any committee whose jurisdiction includes compensation
matters and who receives compensation, directly or indirectly, from NFA for services is precluded from voting on matters pertaining to that member’s compensation.
3. No voting member of the governing board or any committee whose jurisdiction includes compensation matters and who receives compensation, directly or indirectly, from NFA, either individually or collectively, is prohibited from providing information to any committee regarding compensation.
ARTICLE VI – ANNUAL STATEMENTS
Each Trustee, officer, member of a committee with governing board delegated powers, and member of Administration (as applicable) shall annually sign a statement which affirms such person:
1. Has received a copy of the conflict of interest policy,
2. Has read and understands the policy,
3. Has agreed to comply with the policy, and
4. Understands NFA is a charitable organization that is tax-exempt under section 501(c)(3) of the Internal Revenue Code, and that in order to maintain its federal tax exemption it must engage primarily in activities which accomplish one or more of its tax-exempt purposes.
ARTICLE VII – PERIODIC REVIEWS
To ensure NFA operates in a manner consistent with its charitable purposes and does not engage in activities that could jeopardize its tax-exempt status under section 501(c)(3) of the Internal Revenue Code, periodic reviews shall be conducted. The periodic reviews shall, at a minimum, include the following subjects:
1. Whether compensation arrangements and benefits are reasonable, based on competent survey information, and the result of arm’s length bargaining.
2. Whether partnerships, joint ventures, and arrangements with management organizations conform to NFA’s written policies, are properly recorded, reflect reasonable investment or payments for goods and services, further charitable purposes and do not result in inurement of an impermissible private benefit or in an excess benefit transaction.
ARTICLE VIII – USE OF OUTSIDE EXPERTS
When conducting the periodic reviews provided in Article VII, NFA may, but need not, utilize the advice of outside experts. If outside experts are used, their use shall not relieve the governing board of its responsibility for ensuring periodic reviews are conducted.
ARTICLE IX – FURTHER POLICIES
NFA shall adopt further conflict of interest policies applicable to the Administration, faculty and staff of the School as appropriate.
Legal References: Connecticut General Statutes Sec. 33-1129 and 33-1130 Directors’ Conflicting Interest Transactions
Adopted: February 8, 1995
Revised: May 20, 2008
October 20, 2000
Reportable Relationship Criteria Based on IRS Form 990 Instructions
Privileged relationship exception: For the purposes of this form, a “business relationship” does not include a relationship between an attorney and client, a medical professional (including psychologist) and patient, or a priest/clergy and penitent/communicant.
Business relationship: Business relationships between two persons include any of the following:
1. One person is employed by the other in a sole proprietorship or by an organization with which the other is associated as a trustee, director, officer, key employee, or greater-than- 35% owner.
2. One person is transacting business with the other (other than in the ordinary course of either party’s business on the same terms as are generally offered to the public), directly or indirectly, in one or more contracts of sale, lease, license, loan, performance of services, or other transaction involving transfers of cash or property valued in excess of
$10,000 in the aggregate during the organization’s tax year. (Indirect transactions are transactions with an organization with which the one person is associated as a trustee, director, officer, key employee, or greater-than-35% owner.)
3. The two persons are each a director, trustee, officer, or greater than 10% owner in the same business or investment entity.
Ownership is measured by stock ownership (either voting power or value) of a corporation, profits or capital interest in a partnership or a limited liability company, membership interest in a nonprofit organization, or beneficial interest in a trust. Ownership includes indirect ownership (for example, ownership in an entity that has ownership in the entity in question); there may be ownership through multiple tiers of entities.
Example 1: B is an officer of the organization, and C is a member of the organization’s governing body. B is C’s brother-in-law. The organization must report that B and C have a family relationship.
Example 2: D and E are officers of the organization. D is also a partner in an accounting firm with 300 partners (with a 1/300th interest in the firm’s profits and capital) but is not an officer, director, trustee, or key employee of the accounting firm. D’s accounting firm provides services to E in the ordinary course of the accounting firm’s business, on terms generally offered to the public, and receives $100,000 in fees during the year. The relationship between D and E is not a reportable business relationship, either because (1) it is in the ordinary course of business on terms generally offered to the public, or because (2) D does not hold greater-than-35% interest in the accounting firm’s profits or capital.
Example 3: F and G are trustees of the organization. F is the owner and CEO of an automobile dealership. G purchased a $45,000 car from the dealership during the organization’s tax year in the ordinary course of the dealership’s business, on terms generally offered to the public. The relationship between F and G is not a reportable business
relationship because the transaction was in the ordinary course of business on terms generally offered to the public.
Example 4: H and J are members of the organization’s board of directors. Both are CEOs of publicly traded corporations and serve on each other’s boards. The relationship between H and J is a reportable business relationship because each is a director or officer in the same business entity.
Example 5: K is a key employee of the organization, and L is on its board of directors. L is a greater-than-35% partner of a law firm that charged $60,000 during the organization’s tax year for legal services provided to K that were worth $600,000 at the law firm’s ordinary rates. Thus, the ordinary course of business exception does not apply. However, the relationship between K and L is not a reportable business relationship, because of the privileged relationship of attorney and client.