Guidance on Conflict of Interest

for Charter Schools and Authorizers

Overview of Conflicts of Interest

Public education is often subject to intense public scrutiny. State agencies, authorizers, charter schools and
individuals responsible for public education must take affirmative actions to avoid, minimize, or mitigate the
impacts of actual, potential or perceived conflicts of interest. These actions are necessary to avoid damage to
reputation and potential for betrayal of public trust. The Minnesota Department of Education (MDE) expects
that all charter schools and authorizers have a conflict of interest policy in place to guide appropriate and ethical
conduct. The conflict of interest policy establishes procedures that offer protection against charges of
impropriety and conflicts of interest.

Any conflict of interest occurs when a person owes actual or apparent duty or loyalty to more than one
organization, or has personal self-interests, and the competing duties or loyalties may result in actions which are
adverse to one or both parties. A conflict of interest exists even if no unethical, improper or illegal act results
from it. Actual, potential, perceived and organizational conflicts of interest are described in more detail below.
Statutory references to conflict of interest appear in the appendix at the end of this document.

Actual Conflict of Interest

An actual conflict of interest occurs when a decision or action would compromise a duty to a party without
taking immediate appropriate action to eliminate the conflict. Actual conflicts of interest occur when one party:

• Uses his or her position to obtain special advantage, benefit or access to the other party’s time, services,
facilities, equipment, supplies, badge, uniform, prestige or influence.
• Receives or accepts money (or anything else of value) from another party or has equity or a financial
interest in or partial or whole ownership of the other party’s organization. For example, provides
facilities, goods or services to an individual in a position of authority.
• Owes a duty of loyalty to more than one party and cannot do justice to the interests of both parties.

Examples of actual conflict of interest specific to charter schools include but are not limited to:

• A contractor or non-teacher employee of the school is a member of the school board.

• A school board votes to establish a contract with someone who is related to a member of the school
board.
 • A Charter Management Organization arranges a contract with a vendor it controls, or with a family
member’s company for services such as transportation, information technology (IT), independent audit,
food services, or facility lease.
• A school director is able to exploit a professional or official capacity, or one’s personal interests benefit
from official actions or influence.
• An authorizer employee has a side job for a school he or she controls, reviews, inspects or audits as part
of his or her work.
• A school board member cannot make a fair decision because they will be affected by the result. For
example, a director votes on a contract between the school and a business owned by that director.
• An individual evaluates a school, identifies areas of concern and then sells services to the school to
remedy the concerns identified.

Potential Conflict of Interest

A potential conflict of interest may exist if one party has a relationship, affiliation, or other interest that could
create an inappropriate influence. If someone discloses or uncovers a potential conflict of interest, authorizing
staff, board members, or outside legal counsel must 1) discuss and identify the nature of the relationship,
affiliation or other interest, and 2) take action to mitigate any potential conflicts. Examples include but are not
limited to:

• One party has a relationship, affiliation or other interest that could create an inappropriate influence if
called on to make a decision or recommendation that would affect one or more of those relationships,
affiliations or interests. For example, when someone serves in a volunteer capacity for a school but also
is responsible for oversight of programs at that school, it has the potential to create a conflict of
interest, depending on the nature of the relationship between the two parties.
• A person’s self-interest might clash with professional or public interest.
• Weak internal controls and a lack of separation of duties makes it easier for an individual to commit
fraud or improperly use funds.
• Paying an individual an excessive compensation serves a private interest that may be beyond the
school’s or authorizer’s best interest or the public interest.
• An interest could undermine a person’s impartiality or prevent the person from making a fair decision.
• Outside employment, volunteer work or board service that conflicts with or is related to official duties.
• An individual completes work for a school, then is hired by the authorizer to evaluate the school.
• An individual owes a duty of loyalty to the interests of two or more potentially affected parties.
• Selecting a subcontractor without using an open bidding process.

Perceived Conflict of Interest

A perceived conflict of interest is any situation in which a reasonable third party would conclude that conflicting
duties or loyalties may exist. Sometimes the appearance of a conflict of interest can be just as damaging as an
actual conflict. Where a disclosed perceived conflict of interest exists, authorizing staff, board members, or
outside legal counsel must 1) discuss and identify the nature of the relationship, affiliation or other interest, and
2) take action to mitigate any potential conflicts.
Organizational Conflict of Interest
A conflict of interest can also occur with an organization. Organizational conflicts of interest occur when:

• An organization is unable or potentially unable to render impartial assistance or advice to the state due
to competing duties or loyalties.
• An organization diverts opportunities or information from one entity to another based on its influence.
• An organization’s objectivity might be impaired due to competing duties or loyalties.
• A potential grantee has an unfair competitive advantage through being furnished unauthorized
proprietary information or source selection information that is not available to all competitors.

Strategies to Address Conflicts of Interest

Under charter school law, conflicts of interest have the potential to render contracts void (Minn. Stat. §
124E.14). Charter school board members can be held liable for any damage or self-enrichment caused by
conflicts of interest. Charter schools and authorizers owe the duty of utmost loyalty to acting in the best
interests of the students served in charter schools, in order to fulfill the primary purpose of charter school law,
to improve all pupil learning and all student achievement (Minn. Stat. § 124E.01). Employees and board
members of charter schools and authorizers support the mission of their organizations and must make decisions
that best serve the organization, students and the public.

Always be alert for possible conflicts and transparent when addressing conflicts of interest. Notify appropriate
parties potentially impacted by the conflict. Board meeting minutes should document disclosure of conflicts of
interest, including important facts and details. In some circumstances, simply the act of declaring the actual,
potential or perceived conflict of interest may be sufficient to adequately mitigate or manage the conflict.
Sometimes, a conflict of interest can be eliminated by full disclosure and effective supervision.

When a conflict of interest disclosure reveals a conflict of interest, follow the conflict of interest policy to
document and proactively address questions that may arise regarding an individual's objectivity, integrity or
professional commitment. Following the policy demonstrates that the individual and/or the organization have
considered the situation carefully, recognize the issues involved, and take steps to prevent future problems. A
conflict of interest policy outlines the scope and nature of actions, conditions or restrictions put in place to
manage, mitigate or eliminate any actual, potential or perceived conflict of interest.

It is impossible to define all the potential areas where a conflict of interest may arise. If you are in any doubt as
to whether a conflict may exist, you should seek advice from legal counsel, your supervisor, or monitoring
organization or agency. Also, you can apply a reasonable person standard when considering the conflict of
interest. What would an objective, outside observer think of the situation? How would you feel if this situation
was reported in the media? Would you want people to do this to you? Does this activity go against your
conscience?
Mitigating Conflicts of Interests
Following procedures set forth in a conflict of interest policy can help mitigate conflicts of interest. Such a policy
may include actions and strategies for addressing conflicts of interest, such as the following:

• Disclosing all connections to those involved in making decisions to purchase products or services from
the entity in which an employee or board member may have an interest.
• Maintaining a record of disclosures (e.g., through board meeting minutes).
• Removing individuals from the situation or conflict, or resigning from a role.
• Restricting involvement in the situation or conflict (for example, screening from information or decision-
making if a conflict exists).
• Arranging for members of boards and committees to absent themselves from debate or decision on
specific matters.
• Recruiting an independent third party to conduct part of a process or oversee the integrity of the
process.
• Appointing extra persons to a panel or committee to minimize the influence of the individual about
whom the perception of conflict is held. For example, the decision to lease property from the relative of
a board member is made entirely upon the recommendation of an outside commission after an open
bidding process.
• Seeking the views of persons or organizations likely to be affected by someone with a conflict of
interest.
• Restricting access to information that is sensitive or confidential.
• Relinquishing an interest which is ongoing, unacceptable or likely to damage reputation.
• Justifying a conflict of interest when it makes objective sense and meets the reasonable person
standard.

Definitions
Duty of loyalty: the principle that directors and officers of an organization put the organization’s interests ahead
of their own. It is the responsibility to act at all times in the best interests of the organization and its mission.

Impartial: not biased or partial; fair; just.

Influence: the capacity to have an effect on the character, development or behavior of someone or something;
impact.

Mitigate: make less severe or serious; to lessen the gravity of an offense or mistake.

Objective: not influenced by personal feelings or opinions in considering and representing facts; impartial;
disinterested; neutral.

Open bidding: competitive selection process.

Reasonable Person Standard: a legal construct; a test which asks whether the decisions made were legitimate.
A “reasonable person” is a hypothetical person in society who exercises average care, skill and judgment in
conduct.
Transparent: easy to perceive; an action, method or procedure that lacks hidden agendas and conditions, and
complies with the disclosure requirements of clarity and openness in word and intention.

Appendix: Statutory References

Charter School Law

Conflicts of interest are referenced several times in Minnesota’s charter school law, Chapter 124E. Federal
statutory references to conflicts of interest under the U.S. Code of Federal Regulations Uniform Administrative
Requirements, Cost Principles and Audit Requirements for Federal Awards (2 C.F.R. 200) are also applicable to
charter schools receiving federal funds.

Conflicts of Interest in Charter Schools

Charter School Conflicts of Interest

Minnesota Statutes, section 124E.14 describes conflicts of interest in relation to contracting, compensation, and
receipt of gifts:

(a) No member of the board of directors, employee, officer, or agent of a charter school shall participate in
selecting, awarding, or administering a contract if a conflict of interest exists. A conflict exists when:

(1) the board member, employee, officer, or agent;

(2) the immediate family of the board member, employee, officer, or agent;

(3) the partner of the board member, employee, officer, or agent; or

(4) an organization that employs, or is about to employ any individual in clauses (1) to (3), has a
financial or other interest in the entity with which the charter school is contracting. A violation of this
prohibition renders the contract void.

(b) The conflict of interest provisions under this section do not apply to compensation paid to a teacher
employed as a teacher by the charter school or a teacher who provides instructional services to the
charter school through a cooperative formed under chapter 308A when the teacher also serves on the
charter school board of directors.

(c) A charter school board member, employee, or officer is a local official for purposes of section 471.895
with regard to receipt of gifts as defined under section 10A.071, subdivision 1, paragraph (b). A board
member, employee, or officer must not receive compensation from a group health insurance provider.
Charter School Board Conflict of Interest

Minnesota Statutes, section 124E.07, subdivision 3 provides membership criteria founded on the need to avoid
real or perceived conflicts of interest:

(a) The ongoing charter school board of directors shall have at least five nonrelated members and
include: (1) at least one licensed teacher who is employed as a teacher at the school or provides
instruction under contract between the charter school and a cooperative; (2) at least one parent or legal
guardian of a student enrolled in the charter school who is not an employee of the charter school; and (3)
at least one interested community member who resides in Minnesota, is not employed by the charter
school, and does not have a child enrolled in the school. The board structure may include a majority of
teachers under this paragraph or parents or community members, or it may have no clear majority. The
chief financial officer and the chief administrator may only serve as ex-officio nonvoting board members.
No charter school employees shall serve on the board other than teachers under clause (1). Contractors
providing facilities, goods, or services to a charter school shall not serve on the board of directors of the
charter school.

(b) An individual is prohibited from serving as a member of the charter school board of directors if: (1)
the individual, an immediate family member, or the individual's partner is a full or part owner or
principal with a for-profit or nonprofit entity or independent contractor with whom the charter school
contracts, directly or indirectly, for professional services, goods, or facilities; or (2) an immediate family
member is an employee of the school. An individual may serve as a member of the board of directors if
no conflict of interest exists under this paragraph, consistent with this section.

(c) A violation of paragraph (b) renders a contract voidable at the option of the commissioner or the
charter school board of directors. A member of a charter school board of directors who violates
paragraph (b) is individually liable to the charter school for any damage caused by the violation.

(d) Any employee, agent, or board member of the authorizer who participates in initially reviewing,
approving, overseeing, evaluating, renewing, or not renewing the charter school is ineligible to serve on
the board of directors of a school chartered by that authorizer.

Charter School Conflict of Interest when Leasing

Charter schools must certify on the Charter School Lease Aid Certification Form compliance with state law and
property lease arrangements free from conflicts of interest with related party affiliations. Minnesota Statutes,
section 124E.13, subdivision 2 protects against leases with related parties, to avoid potential conflicts of
interest:

(a) A charter school must not enter into a lease of real property with a related party unless the lessor is a
nonprofit corporation under chapter 317A or a cooperative under chapter 308A, and the lease cost is
reasonable under section 124E.22, paragraph (a), clause (1).

(b) A related party permitted to enter into a lease under paragraph (a) must include the following
statement in the lease: "This lease is subject to Minnesota Statutes, section 124E.13, subdivision 2."
 (c) If a charter school leases space from a related party and the charter school subsequently closes, the
commissioner has the right to recover from the related party any lease payments in excess of those that
are reasonable under section 124E.22, paragraph (a), clause (1).

Conflict of Interest Provisions for Charter School Program Grant Recipients

Several U.S. Code of Federal Regulations (CFR) provisions pertain to conflicts of interest charter schools may
experience as part of the grant process for Charter Schools Program (CSP) grants.

2 CFR 200.112 states the following:

The Federal awarding agency must establish conflict of interest policies for Federal awards. The non-
Federal entity must disclose in writing any potential conflict of interest to the Federal awarding agency
or pass-through entity in accordance with applicable Federal awarding agency policy.

2 CFR 200.318(c) states the following:

(c)(1) The non-Federal entity must maintain written standards of conduct covering conflicts of interest
and governing the actions of its employees engaged in the selection, award and administration of
contracts. No employee, officer, or agent may participate in the selection, award, or administration of a
contract supported by a Federal award if he or she has a real or apparent conflict of interest. Such a
conflict of interest would arise when the employee, officer, or agent, any member of his or her
immediate family, his or her partner, or an organization which employs or is about to employ any of the
parties indicated herein, has a financial or other interest in or a tangible personal benefit from a firm
considered for a contract. The officers, employees, and agents of the non-Federal entity may neither
solicit nor accept gratuities, favors, or anything of monetary value from contractors or parties to
subcontracts. However, non-Federal entities may set standards for situations in which the financial
interest is not substantial or the gift is an unsolicited item of nominal value. The standards of conduct
must provide for disciplinary actions to be applied for violations of such standards by officers, employees,
or agents of the non-Federal entity.

(2) If the non-Federal entity has a parent, affiliate, or subsidiary organization that is not a state, local
government, or Indian tribe, the non-Federal entity must also maintain written standards of conduct
covering organizational conflicts of interest. Organizational conflicts of interest means that because of
relationships with a parent company, affiliate, or subsidiary organization, the non-Federal entity is
unable or appears to be unable to be impartial in conducting a procurement action involving a related
organization.

2 CFR 200.319(a) states the following:

(a) All procurement transactions must be conducted in a manner providing full and open competition
consistent with the standards of this section. In order to ensure objective contractor performance and
eliminate unfair competitive advantage, contractors that develop or draft specifications, requirements,
statements of work, or invitations for bids or requests for proposals must be excluded from competing
 for such procurements. Some of the situations considered to be restrictive of competition include but are
not limited to:

(1) Placing unreasonable requirements on firms in order for them to qualify to do business;

(2) Requiring unnecessary experience and excessive bonding;

(3) Noncompetitive pricing practices between firms or between affiliated companies;

(4) Noncompetitive contracts to consultants that are on retainer contracts;

(5) Organizational conflicts of interest;

(6) Specifying only a “brand name” product instead of allowing “an equal” product to be offered and
describing the performance or other relevant requirements of the procurement; and

(7) Any arbitrary action in the procurement process.

In order to meet the requirements of 2 CFR 200.319(a), all individuals who participated in writing the school’s
CSP grant application are prohibited from competing for procurements paid for with CSP funds. An exception to
this requirement is the school’s Start-Up Coordinator/Director, who can be paid with CSP funds if they assisted
in writing the school’s CSP grant application.

Authorizer Conflict of Interest

Minnesota Statutes, section 124E.10, subdivision 2 limits authorizer activity in charter school agreements due to
potential conflicts of interest:

(a) A school must disclose to the commissioner any potential contract, lease, or purchase of service from
an authorizer. The contract, lease, or purchase must be accepted through an open bidding process and
be separate from the charter contract. The school must document the open bidding process. An
authorizer must not enter into a contract to provide management and financial services to a school it
authorizes, unless the school documents receiving at least two competitive bids.

(b) An authorizer must not condition granting or renewing a charter on:

(1) the charter school being required to contract, lease, or purchase services from the authorizer;
or

(2) the bargaining unit status of school employees.

Conflict of Interest Addressed by Other Minnesota Statutes and Rules

Minn. Stat. § 10A.07 Conflicts of Interest

Minn. Stat. § 15.43 Acceptance of Advantage by State Employee; Penalty

Minn. Stat. § 16B.97 Grants Management

Minn. Stat. § 16B.98 Grants Management Process

Minn. Stat. § 16C.04: Ethical Practices and Conflict of Interest

Minn. Stat. § 43A.38 Code of Ethics for Employees in the Executive Branch

Minn. Stat. § 317A.255 Director Conflicts of Interest

Minn. Stat. § 471.87 Public Officers, Interest in Contract; Penalty

Minnesota Rules 3900.9500 Reporting and Investigating Conflict of Interest

Federal Statutory References to Conflict of Interest

Federal Administrative Law:

2 C.F.R. 200.112 Conflict of Interest

2 C.F.R. 200.318(c) General Procurement Standards

2 C.F.R. 200.319(a) Competition

Federal Education Law:

34 C.F.R. section 74.42 Codes of conduct

34 C.F.R. section 74.43 Competition

34 C.F.R. section 74.44 Procurement procedures

34 C.F.R. section 74.45 Cost and price analysis