Tips to help nonprofits avoid conflicts of interest

If you’re at a nonprofit funded by the city of New York, and you’re thinking you don’t have to worry about the city’s internal staff ethics rules, think again.

The rules, designed to protect the integrity of decisions made by city employees and prevent personal interests from intruding on public duties, are often not noticed until they’ve been broken. Perhaps you’ve read coverage of guidelines released this year about Mayor Bill de Blasio’s legal defense fundraising or read about city officials’ personal use of government cars and perhaps you’ve thought yournonprofit is not subject to those rules and you’ll never have those problems.

Well, contrary to what you may have thought, if you contract with or receive grants from the city and interact with employees who work for city agencies, such as the Administration for Children's Services, the Education Department or the Human Resources Administration, the city’s conflict of interest rules can, in all likelihood, become a problem for nonprofits.

City employees are subject to the conflicts of interest law – found in Chapter 68 of the New York City Charter – which is enforced by the Conflicts of Interest Board. This includes teachers at schools where you may run your after-school program or the auditor who interacts with your program and finance departments. Chapter 68 sets out ethics standards that city employees and former employees must meet – or suffer fines and other penalties. While it wasn’t designed to regulate nonprofit contractors or grantees, it’s become increasingly important for organizations dealing with the city to understand that interactions with current and former city employees can be subject to – and potentially violate – conflicts of interest regulations.

To begin with, the ethics law has been amended to govern gifts from lobbyists to city employees. So, at a minimum, city contractors and grantees need to be familiar with those provisions because nonprofit executives can be considered lobbyists under the law. While the rules permit some gifts, a nonprofit executive – and even that executive’s spouse – could be fined, and in some cases criminally prosecuted, for offering gifts to a city employee.

In addition, Chapter 68 purports to empower the Conflicts of Interest Board to “render forfeit and void” certain “transactions” deemed to be involved in an ethics violation. While the board has never used this provision, and it’s never been tested, it justifies attentiveness to the city’s conflicts of interest rules since the city might try to invoke it to cancel your organization’s grant or contract.

It’s also possible for nonprofits to get dragged into government ethics investigations and scandals due to quite tangential connections. If, for example, the Conflicts of Interest Board investigates a government employee for attending a fundraiser or gala thrown by a government contractor – even if such attendance is legal – the contractor may be subpoenaed and questioned, mentioned in public statements, referenced in media accounts, and, where there are improprieties, tarnished in the city’s vendor integrity database. At a minimum, this can lead to legal and public relations expenses. In the worst case scenario, it can lead to a loss of some and possibly all, government revenue.

As if this were not reason enough, city contracts lawyers have also given many nonprofit contractors a new reason to study Chapter 68. Many city contracts prohibit contractors from causing a city employee to violate an ethics rule. Therefore, a law designed to regulate government employees can become a tool that city agencies may use to ensnare your nonprofit if your staff gives a city employee a gift, such as an in-kind service or a donation to the city employee’s favored cause.

If you’re thinking, “I won’t get in trouble if I’m ethical,” think again. Chapter 68’s standards are not always intuitive. Things that seem fine violate the law and vice versa. For example, which scenario raises more questions under Chapter 68: An after-school contractor recruits a gym teacher from the public school hosting the program; or that same contractor hires the mayor’s education policy adviser?

Under Chapter 68, employing a city gym teacher to coach at the after-school program raises ethical concerns that will be expensive or impossible to untangle. The teacher may be barred from communicating with city employees at the school for a year, which may render the teacher useless to you. By contrast, the mayoral adviser will likely be able to represent your organization at meetings with the school’s chancellor immediately without violatingChapter 68.

Issues can also arise in innocent, trivial settings. For example, if a city employee asks a contact at your organization to purchase cookies for a kid’s school club, that may seem like nothing but Chapter 68 bells should go off, since this will generally be an ethics violation.

Chapter 68 is not easy.

Bear in mind these sample situations where city ethics issues can arise:

• A city employee attends an event hosted by a contractor.

• A city employee receives something from a contractor, including an award, a meal, a present or a ticket to an event.

• A city employee endorses or promotes a contractor or its program.

• A city employee negotiates for or accepts a job from a contractor.

• A nonprofit learns about a project that the city is developing, but has not publicly announced.

• A nonprofit employee calls his or her former city agency to find out an email address.

• A former city employee, who now works for a nonprofit, works on a project that the employee was on when employed by the city.

Fortunately, these issues can be managed. Here are some tips on how to avoid being ensnared by the city’s ethics rules:

• Designate someone to be responsible for ensuring that your organization does not become entangled in ethics violations and to be responsible for coordinating the organization’s response if a problem arises.

• Review your city contracts and grants. Make sure you know which, if any, contain clauses incorporating the city’s ethics laws. Incorporate the laws into your subcontracts to make sure that your obligations flow down to subcontractors.

• Include a reference to the city’s ethics laws in your organization’s code of conduct. Make sure that it’s a violation of your code to cause a city employee to violate Chapter 68.

• Train employees on the city’s ethics laws. The materials on the Conflicts of Interest Board’s website are a good start. But training specific to your position as a contractor or grantee is likely to be more effective.

Claude M. Millman is a partner at Kostelanetz & Fink LLP. He is a former director of the New York City Mayor’s Office of Contract Services and a former commissioner on the city’s Charter Revision Commission.