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Is it conflict for treasurer's employee to do books?

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Is it conflict for treasurer's employee to do books?

Is it a conflict of interest for our volunteer board treasurer, who is an accountant by profession, to have an employee in his firm handle our internal accounting on a pro bono basis?

It may technically be a conflict of interest if the treasurer employs someone in his office to do the work, but as long as it is free, it is not an economic conflict and I don’t think I would be particularly worried about it.  It is a little like the treasurer doing the work himself, and I don’t think anyone would call that a conflict of interest.

The issue here is one of oversight, whether the treasurer will somehow be compromised in supervising the employee and less likely to point out errors in the employee’s work if it would cause an embarrassment to his firm.  Accountants might consider it akin to a deficiency in internal controls.  The organization may want to have some additional unaffiliated oversight, perhaps from an independent auditor.

Tuesday, January 11, 2011


It seems to me that often it is misused by people, perhaps because they confuse the word "interest" here with the concept of something being "interesting" -- i.e., worthy of attention. In these uses, it often serves as a multi-purpose way of throwing sand in the gears.  Once that intimidating phrase has been introduced, everyone turns pale and shuffles their papers.  Even worse, in my opinion, is the energy invested in avoiding "an appearance of a conflict of interest."  It is impossible to say how something may "appear" to someone else, especially if that someone is predisposed to see evil in every transaction.  Straightforward actions, often transparently beneficial to the questioned party, are too often put aside for fear of an accusation of an "appearance."  Courage is what's needed, and confidence about the correct use of the underlying term.

All that said, there is of course the possibility that the Treasurer and the employee could be in cahoots to divert resources from the NPO, either to boost the earnings of the firm or to line their own pockets more directly.  The arrangement sounds a little too cozy to me -- it would be very hard for anyone to review the work of the volunteered accountant/employee without generating a uncomfortable situation.  At the very least, the firm in question should not also audit the NPO's books! -- P.B. via email

The accounting firm could not audit the books of the organization because having a member of the firm on the board would preclude the auditor from being independent.

In reflecting on this question further, it seems to me it is very much like having a lawyer on the board provide pro bono services to the organization and accomplishing that service by supervising a junior associate who actually does the work.  I don't think most people would characterize the representation itself as a conflict of interest for the lawyer. (It raises other issues, but classic conflict is not one of them.)  If the lawyer's firm were to be paid, it would be a classic conflict of interest, but even that type of conflict is routinely waived by many organizations that hire lawyers on the board to represent them in certain situations.  While boards ought to watch the situation carefully, both lawyers and accountants have professional responsibilities that should significantly reduce any risk to the organization. -Don Kramer

“It is a little like the treasurer doing the work himself, and I don’t think anyone would call that a conflict of interest.”

Be aware that this is an even greater conflict of interest than the treasurer having an employee do the work.  This is like the expression “letting the fox guard the chicken coop.”

The treasurer is supposed to maintain oversight and serve as a check and balance.  If the treasurer is also doing the books himself, he can be fudging things and there is no one else to catch him.

Just one guys opinion. --E.F. via e-mail

I agree there is a lack of oversight, but I don't think it is a conflict of interest in the traditional legal sense of having a self-interest and benefiting from the situation at the expense of the organization.  It is not, in my view, a conflict of interest when someone does the job assigned.  The Secretary does not have a conflict of interest in taking the minutes of the meeting.  Oversight and internal controls, in my view, are different from conflict of interest.  Perhaps lawyers and accountants just look at things differently and use different terminology in describing similar things. --Don Kramer

We agree, then, that there is a lack of oversight. 

I think we can also then agree that a lack of oversight is not good for the organization (though one could argue about just how bad it is).

I would further submit that the Treasurer example is not analogous to the Secretary example.  The Secretary's minutes are reviewed by other board members.  However, the board does not necessarily pick up the slack if the Treasurer's oversight role has been compromised. --E.F.

Maybe I'm misunderstanding the question, but I didn't get a clear answer and a non-profit I have as a client is currently looking at this very issue. If Mr. Smith, a partner in CPA firm and treasurer for XYZ Non-profit, assigns one of his employees to do accounting for XYZ Non-profit at no cost to the non-profit (said employee is paid by CPA firm), is that a conflict of interest? Whether there's a lack of oversight may depend on who can sign checks and who is reviewing the financial reports besides Mr. Smith as treasurer. --C.D. via email

As I indicated before, in my view a legal conflict of interest arises in a situation in which a person on the board has a personal interest in a transaction and could gain some sort of personal benefit from the transaction.  If the firm were to be paid for the staff accountant's services, some of that income would go to the treasurer and it would be a classic conflict of interest situation.  I do not believe that it is a conflict of interest for a member of the board to donate to the organization, either by giving dollars, time (volunteer services), or the services of an employee, unless the donor gains some sort of personal benefit from the donation.  That could occur, for example, if the donor gave a piece of property with environmental damage that the donor did not want to be personally responsible for.  I don't view donating the services of a staff accountant to be equivalent to offloading an environmental problem.

Therefore, I do not view this gift of volunteer service (either the service of the treasurer personally or the service of a staff accountant) as a conflict of interest where there is no suggestion that the treasurer receives a personal benefit from the situation.  My accountant friend views it as a conflict because it undercuts the oversight obligation of a treasurer to the organization.  I agree that it could undercut the oversight responsibility, but believe, as you suggest, that there other ways to assure more controls.  I don't see it as a conflict of interest in the classic legal sense. --Don Kramer

I think this points out how few people, and apparently some accountants, fail to understand that the Treasurer is NOT oversight; Treasurers are on the board, not independent.

This is why, in really well-run organizations, financial reports that the Treasurer submits should not be considered as "accepted" but rather as filed awaiting audit. The audit committee should be selected or elected and should consist of people completely independent of the Treasurer's control, and should all be people who don't do any of the book-keeping.

Anything a Treasurer prepares (or has a minion prepare, who cares? it's from the Treasurer because the Treasurer either did it or entrusted it to someone to do) should be viewed by all as possibly correct, but that's what audits are for. The weakness here is if someone thinks that the books are somehow better if the Treasurer herself is doing grunt level accounting work.

There's certainly no additional conflict of interest by having a minion do for the Treasurer what the Treasurer is charged with doing; the Treasurer isn't having divided loyalty -- instead, Treasurer is giving his employee's time pro bono, presumably so that he can earn more in his practice and continue to volunteer for the board. Conflict of interest doesn't arise here because the interests are unchanged, whether it's the Treasurer operating the calculator and pushing the pencil or someone the Treasurer pays to crunch numbers and write reports. If someone can find a conflict of interest in that, then every Treasurer has the same conflict. (Or a conflict would arise when Treasurer suggests that his firm would be good for the audit, because they're already so familiar with the books, and that they'd be willing to do it for a very reasonable price . . . )

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