Maribeth Vander Weele
Public Interest or Self Interest? Conflicts of Interest in Grants Monitoring
When the FBI arrested (former) Connecticut State Rep. Michael DiMassa for secretly funneling more than half a million dollars of West Haven’s CARES Act money into a private shell company, the alleged scheme lit a fire under state representatives to find out exactly how each municipality had spent its share of more than $60 million in federal relief funding. “This money was entrusted by the federal government to the state of Connecticut to help people who were being negatively impacted by a pandemic of historic proportions,” Senator Kevin Kelly said. “It was given to Connecticut for a very specific purpose, for a very specific need. And the state has a responsibility to make sure that the funds were used for that purpose.”
The Office of Policy and Management (OPM) has since undertaken an audit of spending by 169 cities and towns to determine whether the funds were spent according to the terms of the federal award and in compliance with the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, or Uniform Guidance. The alleged fraud in West Haven might be an isolated incident, Senator Kelly said, but the only way OPM can determine that is by inspecting records in other municipalities.
Incidents like the DiMassa wire fraud allegations illustrate exactly why the federal government requires non-Federal pass-through entities—in this case, the state of Connecticut—to have conflict of interest policies in place to protect taxpayer dollars.
2 C.F.R. §200.318(c)(1) states, “The non-Federal entity must maintain written standards of conduct covering conflicts of interest and governing the actions of its employees engaged in the selection, award and administration of contracts. No employee, officer, or agent may participate in the selection, award, or administration of a contract supported by a Federal award if he or she has a real or apparent conflict of interest.” In addition, 2 C.F.R. §200.112 states, “The non-Federal entity must disclose in writing any potential conflict of interest to the Federal awarding agency or pass-through entity in accordance with applicable Federal awarding agency policy .”
Ensuring these requirements are met can be the subject of monitoring or inquiry by the State Auditor, an Inspector General, Congress, or a legislative committee, so it’s in everyone’s best interest to ensure a solid ethics program prohibiting conflicts of interest is in place and well-documented.
What Qualifies as a Conflict of Interest?
According to the Uniform Guidance, “Such a conflict of interest would arise when the employee, officer, or agent, any member of his or her immediate family, his or her partner, or an organization which employs or is about to employ any of the parties indicated herein, has a financial or other interest in or a tangible personal benefit from a firm considered for a contract” (2 C.F.R. §200.318(c)(1)). More plainly, a conflict of interest occurs when an individual's personal interests—family, finances, and other concerns—could compromise or appear to compromise his or her judgment, decisions, or actions in the workplace, or interfere with his or her professional obligations or responsibilities to the organization.
Below are two examples of conflicts of interest.
Example 1: Conflict of Interest During the Procurement Process
Background: The executive director of a nonprofit spearheads a $175,000 contract for QRST Technology to oversee the tracking of meals provided to low-income families.
Conflict of Interest: The executive director’s husband is the manager and co-owner of QRST Technology. This is a conflict in fact—the executive director of the nonprofit has a spouse who benefits from the contract.
Potential Result: Presuming that such activity was formerly prohibited in the ethics program, the awarding agency launches an investigation to determine if the procurement process was fair and transparent. This could result in loss of public trust.
Example 2: Conflict of Interest from a No-Bid Contract
Background: Agency A receives a new award which includes $50,000 to hire a consultant. The assistant commissioner states that the request does not have to be posted for bids. Instead, they provide a reputable organization, and a contract is awarded.
Conflict of Interest: The contract was awarded to LCCI Consulting. The owner of the organization is the assistant commissioner’s cousin. This is both a conflict in fact and conflict in appearance—the assistant commissioner has a family member who benefits from the contract, did not disclose the relationship, and denied other firms equal opportunity to bid.
Potential Result: Another local consulting firm submits a protest that they provide the same services as LCCI, but were not given their legally required opportunity to bid. An investigation is launched on the contract.
Definitions and examples provided in this section are courtesy of the OJP Territories
Financial Support Center at the U.S. Department of Justice.
Identifying Conflicts of Interest
To help determine if a conflict of interest exists, ask, “Would a reasonable, disinterested observer think that an employee’s competing personal interests conflict, appear to conflict, or could conflict in the future with the individual’s duty to act in the organization’s best interests?”
To answer the question, consider the following:
Could the employee or a family member benefit from or be detrimentally affected by the proposed decision or action, now or in the future?
Does the employee have a current or previous professional or financial relationship of any significance with the interested party?
Does the employee or a family member stand to gain or lose financially in some way?
Has the employee received a gift, benefit, or hospitality from someone who stands to gain or lose from the individual’s proposed decision or action?
Would there be any concerns if the competing private interest and the action taken (or not taken) by the organization was disclosed on the front page of a newspaper or via electronic media?
Preventing Conflicts of Interest
To help negate conflict of interest concerns, it is essential that organizations have established protocols in place and that employees are trained in their implementation. But what does that look like?
At a minimum, conflict of interest policies should:
Identify what the organization or the law considers a conflict of interest;
Define the time period during which a conflict of interest exists;
Define the process for disclosing and resolving conflicts of interest;
Require employees, volunteers, and board members to disclose any potential conflicts of interest in writing on an annual basis;
Require the organization to retain disclosure documents and consult them carefully when making critical business decisions;
Have a written process in place for addressing conflicts of interest when they arise, including employee and vendor disciplinary policies.
It’s also a good idea, when possible, to adopt business practices that exclude individuals who have a potential conflict of interest from relevant selection and approval processes.
Some important questions to consider when designing a conflict-of-interest policy are:
Does the organization create sufficient separation of duties between elected officials and program management, as well as between employees and vendors?
What is the process for ensuring proposal requirements are not overly restrictive and do not detrimentally narrow the pool of capable, eligible bidders ?
What is the process for disclosing conflicts of interest?
What training will be provided to employees—and potentially vendors, contractors, etc.—regarding conflicts of interest, disclosures, and business ethics?
How will the conflict-of-interest policy and its implementation be tested?
In the event of a potential conflict of interest, what steps can be taken to prevent an actual conflict of interest?
What are the processes by which the organization will investigate potential conflicts of interest? Who will conduct the investigations and what evidence will be required to substantiate claims?
In the event of an actual conflict of interest, what are the steps involved in mitigating the problem?
What disciplinary policies will employees be subject to in the event of a conflict-of-interest violation? What about vendors?
When designing or enforcing your conflict-of-interest policy, it’s always a good idea to consult a legal professional. In addition to providing strategies to minimize the chances of a conflict of interest occurring, they can advise you on the implications of potential or actual conflicts of interest and help develop processes for addressing them.
A solid ethics program can’t prevent every incident of nefarious self-dealing, but it lays the foundation for detection and swift response should one occur.
Watch this space for upcoming articles in which we discuss using data analytics to detect conflicts of interests and other instances of grant fraud.