Conflicts of Interest: What are the requirements?
The process and related documentation to avoid conflicts of interest when administering grant funding must be addressed by grantees.
Without careful oversight, grantees risk noncompliance and even grant fraud. It is important to understand that not knowing the requirements will not get you “off the hook” when it comes to granting management.
First and foremost grantees should understand the definition of conflict of interest in order to properly identify relationships of risk.
For many organizations, your written Code of Conduct is the first step in defining what constitutes a potential conflict of interest.
What is a “conflict of interest”?
In general, a conflict of interest can be defined as an interest or activity on the part of an individual, business, or organization that has the ability to influence – or even appear to have the ability to influence, the capacity to make objective decisions.
Who benefits from the purchase?
In particular, the identification of potential conflicts of interest when making decisions about how grant funds will be spent requires careful consideration.
The basic question that must be addressed is whether or not the parties involved in the transaction will benefit either directly or indirectly.
Direct financial interest vs. indirect financial interest
A direct financial interest simply means the party receiving grant funds has the opportunity to receive those funds directly via the transaction.
An indirect interest occurs when the party is associated with an individual, business, or organization receiving remuneration for goods or services via grant funds.
Keep out of trouble!
The best approach to preventing conflict of interest is to have preemptive policies and procedures in place. Yes, the requirements can be confusing. The regulations and directives from government agencies can be quite complex.
However, grantees who are able to answer the following questions in the affirmative are well on the way to reducing their risk of engaging in transactions that represent conflicts of interest.
Question #1
Does the grantee have a formal training process for educating employees, the board of directors, and all other parties (such as consultants and even clients served by the grant) as to the terms and conditions of the grant?
Educating all parties is the first, and most important, step grantees can take to avoid conflict of interest. An effective program includes:
Educating all parties as to specific requirements dictated by the grant and Administrative Requirements.
A well-defined reporting process to be followed when a conflict is identified or suspected.
Question #2
When awarding a contract or purchasing goods or services, does the grantee have formal procurement processes and policies in place to identify potential conflicts of interest?
Effective procurement processes and policies reduce the risk of conflict by establishing checklists and guidelines that must be followed prior to awarding contracts or making purchases.
In addition, this process provides documentation the grantee has appropriately followed the administrative requirements of the grant as well as associated federal and other agency requirements.
Watch out for the appearance of a conflict of interest
Remember, conflicts of interest can be “real” or “apparent.” The organization must determine from the “facts” if a real or apparent conflict of interest exists. If there is a conflict of interest, the individuals are prohibited from participating in the selection, award, or administration of the contract.
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Author:
Lucy Morgan CPA, MBA
CEO, Compliance Warrior
Author of “Decoding Grant Management-The Ultimate Success Guide to the Federal Grant Regulations in 2 CFR Part 200” The 2nd Edition is now available on Amazon in Paperback and Kindle versions.
