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Board Member Paying Staff Member Extra

Ananias

Dear Kim,  

I chair the board of a small religious organization.  Each employee has to raise a certain amount toward their salary and this amount is set by the board, as are the salaries. Recently it came to my attention that one employee is receiving additional support from a board member who provides a designated gift for that individual’s support. I was caught off guard to find that this individual is making more money than we knew and that a particular board member is providing it.  This seems like money laundering to me. The board member is making a financial gift to a family, and running it through the non-profit so that it can be tax deductible. Is there an IRS rule, or a piece of governance that would prevent this sort of thing from happening? 

~Ananias Revisited 

Dear Ananias, 

I will let readers find the story you allude to. (HINT: Christian testament, Book of Acts). I hope your story does not end quite as dramatically!  

Unless the board member is related to the staff person, or in some way financially benefits from this arrangement, I don’t think this would be money laundering. You might check with an attorney or an auditor, but I don’t see anything actually illegal here.  

However, there are serious governance issues here and they all lead to one overriding problem:   a lack of transparency on the part of this board member. You have one employee who is paid differently (and presumably more) than all the other employees because you have one board member who is disregarding the salary levels established by the rest of the board. As the chair, you need to have an honest conversation with this person to let him or her know that this is not OK.

I also wonder about this employee. That this individual is willing to go along with this deception would raise questions about his or her honesty in other areas of the job.  Aside from having some open conversation about this, you need to establish a gift acceptance policy, which, among other things, outlines the protocols for accepting designated gifts. Generally, when a donor says, “I want my money to go to X,” the board must be consulted if the amount the donor wishes to give is significant. (And the meaning of ‘significant’ is set by the board.)  

In all things like this, I would follow the Quaker adage, “Assume good intent.” There could be an understandable explanation for this arrangement, especially if it has only gone on for a short time. But also, I would put a stop to it immediately.  

Good luck to you.  

~Kim Klein

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