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  1. #1
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    Jul 2020
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    Default Nonprofit Spending

    Is it legal for the president of a large nonprofit to use the nonprofit to make a purchase that benefits him personally? In this particular case, the president of the nonprofit is also the vice president of the sales division of a video filming/editing company. Is it legal for the nonprofit to purchase video editing services from the company he works at, which gives him a commission for the sale? Are there any protocols in place that the nonprofit would have to follow before making the purchase, such as taking bids from other companies? Thank you for any insight you are able to provide.

  2. #2
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    Oct 2014
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    Default Re: Nonprofit Spending

    Quote Quoting xxNeutronxx
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    Is it legal for the president of a large nonprofit to use the nonprofit to make a purchase that benefits him personally?
    That depends on the details of the purchase involved.

    Quote Quoting xxNeutronxx
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    In this particular case, the president of the nonprofit is also the vice president of the sales division of a video filming/editing company. Is it legal for the nonprofit to purchase video editing services from the company he works at, which gives him a commission for the sale? Are there any protocols in place that the nonprofit would have to follow before making the purchase, such as taking bids from other companies? Thank you for any insight you are able to provide.
    There are several things to consider. First, it depends on what kind of activities the nonprofit does and which state's law regulates the nonprofit. You've not indicated the state or what kind of nonprofit this is. Second, it matters whether this nonprofit is a tax exempt organization under federal tax law and if so, what kind of exempt organization. A lot of the public assumes that the terms "nonprofit", "charity", and "tax exempt organization" are the same thing, but they are different.

    If it is a tax exempt organization under IRC 501(c)(3), which covers charitable, religious, and educational organizations, the rules prohibit the organization from engaging in "private inurement", which means that a person involved in the organization cannot profit from the organization other than reasonable compensation for services or goods provided to the organization. When a president is selling goods or services to the organization he must therefore make sure that the organization is being charged a competitive rate for what he's providing. These kinds of transactions get close scrutiny because of the obvious potential for abuse.

  3. #3
    Join Date
    Jul 2018
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    2,434

    Default Re: Nonprofit Spending

    Quote Quoting xxNeutronxx
    View Post
    Is it legal for the president of a large nonprofit to use the nonprofit to make a purchase that benefits him personally? In this particular case, the president of the nonprofit is also the vice president of the sales division of a video filming/editing company. Is it legal for the nonprofit to purchase video editing services from the company he works at, which gives him a commission for the sale? Are there any protocols in place that the nonprofit would have to follow before making the purchase, such as taking bids from other companies? Thank you for any insight you are able to provide.
    Is it legal? Yes. In other words, it violates no law.

    If the company does not need video editing services, then the company could probably sue the president (after removing him from office) to recover the unnecessary expenditure. However, if the company does need video editing services, then it's a different story. If the company needs video editing services and the other company provides those services at fair market value, then what difference do you think it makes?

    That said, depending on the applicable state law, if the president did this without disclosing the potential conflict of interest to and obtaining permission from the company's board of directors, its possible that he might still be liable.

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