In recent years conflict of interest reporting has become a major topic of discussion during audits, but why?
First a conflict of interest can be identified as this:
- “Any public officer or employee of a public agency who has, or whose relative has, a substantial interest in any contract, sale, purchase or service to such public agency shall make known that interest in the official records of such public agency and shall refrain from voting upon or otherwise participating in any manner as an officer or employee in such contract, sale or purchase.”
- “Any public officer or employee who has, or whose relative has, a substantial interest in any decision of a public agency shall make known such interest in the official records of such public agency and shall refrain from participating in any manner as an officer or employee in such decision.”
So why is this important?
Last year in the State of California, one of its largest charter holders named “A3 Education” having 19 online charter schools had been reported in the news for running a $50 million dollar charter school scam where 11 individuals were indicted. A piece of this scam has to do with conflict of interest reporting.
Auditors were performing their annual audit for Cal Prep Sutter when it was noted that the CEO of Cal Prep Sutter was also the CEO for A3 Education. The CEO did not have any conflict of interest or related party documentation to disclose this information. Additionally, the auditor noted during the reading of board minutes that this was never discussed when voting took place to authorize A3 education expenditures. This issue was included in the formal indictment because, it was later found that the CEO conspired to backdate paperwork to show the CEO’s resignation from Cal Prep Sutter months before the expenditures took place.
What does this mean for your Organization?
It is important to train your employees on the timely reporting of any potential conflict of interests they have, but also your organization should develop a board approved policy. Once this policy is implemented it may be good rule of thumb to have employees sign an acknowledgement of the conflict of interest policy, as well as provide a disclosure of any conflicts they may have annually. Additionally, if any organization official has a conflict of interest, they must recuse themselves from the procurement process in order to not sway the organizations purchasing in a certain direction.
To read more on the California Charter School Indictment:
If you still have questions about conflicts of interest, feel free to contact a Henry + Horne audit professional.