What is a Conflict of Interest?

A Conflict of Interest occurs when a public officer who is authorized to take part in any manner making any sale, lease, or contract in official capacity shall not voluntarily have a personal financial interest in that sale, lease, or contract or personally benefit financially therefrom. A “public officer” may refer to an elected or appointed officer of a board or council, or a director, employee, partner, owner or shareholder of a public entity such as a City or School District.

Conflicts of Interest are more likely to happen when public officers do not properly disclose potential interests they may have in contracts, partnerships or other decisions made by the Entity, whether intentionally or not.

Examples of Common Conflicts of Interest among Boards and Councils:

1. Public Officer has an interest in a Bank or Savings Association, that the Entity uses for public funds or as a source of borrowing.
2. A public officer is an employee or member at the local newspaper that the Council may designate as the official newspaper.
3. An Entity entering into a contract with a cooperative association, that a current council member is a shareholder of.
4. An Entity enters into a contract with a public officer’s business when they are competitive bidding.
5. An Entity enters into a contract with a volunteer fire department in which a public officer is a member of.
6. An Entity rents a space in a publicly owned facility to a public officer.
7. An Entity enters into a franchise agreement or contract for utility services to the Entity, and a public officer is an employee or has an interest in the Utility company.
8. An Entity makes a contract with a construction company for construction materials, that one of the public officers has interest in.
9. Property or Equipment that is no longer needed for public purposes is sold to a public officer.

Ways to prevent Conflicts of Interest from occurring:

The most effective method to prevent conflicts of interest from arising, is to have a policy in place stating that all members should disclose any relations they may have with a business. It is good practice that this information is reviewed at the start of each year. Any time a contract is presented that contains a potential conflict of interest with a public officer, the public officer must announce the nature of the relationship to the contractor prior to the Board or Council enters into the contract. If the contract proceeds to a vote, the public officer must abstain from voting.

Sometimes, conflicts of interests are unavoidable if the contracted party is the only option available, such as the only local newspaper or bank. In this case, the council may make a contract with the contractor despite the conflict of interest as long as the public officer has followed the appropriate procedures. When multiple bids are presented, the Council must accept the lowest responsible bidder. The existence of a potential conflict interest does not change this rule.

Public Officers may rent and utilize public spaces as long as the rate they are charged is equal to the rate charged to other members of the public.

When property or equipment is no longer needed for public purposes, the Entity may choose to sell those items through an auction or sealed bid process. At least one week notice of the auction or sealed bid process must be given to the public. Employees who do not have access or involvement in the auction or sealed bid process may participate. The property or equipment must be sold to the highest responsible bidder.

What happens if an entity violates the Conflict of Interest law?

If an Entity enters into a contract that is in violation of the law, then the contract is immediately considered void. Additionally, there may be potential penalties. Violating this law is considered a gross misdemeanor, the offending party could pay up to $3,000 in fines and face up to a year in prison.

Conclusion

There are many potential Conflicts of Interest that a Board or Council may encounter. In most cases, the Entity can stay in compliance with the law when public officers are informed of their duty to recognize potential Conflicts of Interests and abstain from voting when applicable.