NPC Support for Business Meetings and Conferences
When deciding whether to support expenses related to research, education and other business meetings, including direct payment or reimbursement for meals and refreshments, an NPC must consider multiple issues.
To assist NPC boards of directors and executive directors, NAVREF offers the following overarching guidance: First determine whether the purpose of the meeting makes it appropriate for NPC support. That is, does it facilitate VA research or education? Then determine whether it is appropriate for the NPC to pay for or reimburse the associated costs, including meals or refreshments served during the meeting. Food must be incidental to the primary purpose of the occasion and should not be extravagant. All food expenditures should meet the test of what a reasonably prudent person would expect to spend for food commensurate with the occasion.
NPCs looking for guidance on paying for meetings must navigate complex statutes and regulations to arrive at a coherent policy. In developing a policy, NPCs may wish to include review of the following:
38 USC §§7361-7368 authorizes the NPCs to facilitate research and education at the affiliated VA medical center. Within this limitation, the only specific constraint on NPC expenditures included in the NPC authorizing statute is that an NPC may not expend funds for research projects or education activities unless they have been reviewed and approved by the facility R&D Committee or the Education Committee respectively. Otherwise, by statute NPCs are subject only to those laws and regulations that apply generally to other private nonprofit corporations and regulations prescribed by the secretary of the Department of Veterans Affairs.
Federal ethics standards (5 CFR §2635) consider acceptance of food to be the same as receipt of a “gift” so the regulations pertaining to acceptance of gifts from outside sources apply to food as well (5 CFR §2635.201). The basic rule is that federal employees may not solicit or accept a gift that is given because of their official position or that is given by a prohibited source. A prohibited source is a person or organization that seeks official action by the employee’s agency; does business or seeks to do business with the agency; has activities that are regulated by the agency; or has interests that may be affected by the employee in the course of official duties.
Note: An unpublished 1996 Office of General Counsel (OGC) opinion concludes that “the rules pertaining to gifts from ‘prohibited sources’ and gifts solicited or accepted because of an employee's official position are not applicable to gifts from research corporations.” Further, OGC determined that “there is a complementary, reciprocal relationship between the VA research corporation and the VA.“ As a result, generally “a statutory VA research corporation that is making a gift which is within its statutory power is not a prohibited source.” (UO61893 Acceptance of gifts from VA Research Corporations). However, due to the a change made in the revision of the authorizing statutue in 2010, OGC is currently undergoing a review of whether NPCs would still be considered prohibited sources.
Accordingly, NPCs may pay for and VA employees may accept meals paid for by NPCs provided that the expenditure is otherwise appropriate for an NPC. That is, the meal is incidental to a business meeting that has a legitimate research, education or NPC operations purpose. For example, NPCs may pay for reasonable costs associated with recruiting researchers, board meetings, and educational conferences consistent with an NPC's statutory authority and board-approved policies, and VA employees generally may accept meals incidental to these meetings without violating the federal ethics regulations. That said, NPC payment for meals should be kept to a minimum and reserved for special situations.
The ethics standards provide a few exceptions for acceptance of gifts from prohibited sources. One provides that federal employees may accept gifts/meals with a value of $20 or less on a single occasion, but not more than $50 per year per prohibited source. This exception provides a safe harbor if there is any question whether the payer is a prohibited source. A second exception is that federal employees may accept meals offered in conjunction with “widely attended gatherings;” that is, meetings or conferences that are conducted for, and attended by, a mix of VA and non-VA personnel [5 CFR 2635.204(g)].
Meals are considered gifts, but refreshments that are not part of a meal have so little intrinsic value that they may be accepted without undue concern about who is giving them or why. As a result, federal employees generally may accept refreshments. However, gifts/meals should not be accepted from the same or different sources so frequently that a reasonable person may believe that employees are using their public offices for personal gain. [The Office of Government Ethics web site at http://www.usoge.gov provides guidance about acceptance of meals and refreshments by federal employees. A pamphlet called "Gifts from Outside Sources" provides concise information.
The IRS allows nonprofits broad latitude in determining appropriate meeting expenditures. The primary considerations are that expenditures should be “reasonable” and properly documented. Additionally, the event must further the nonprofit’s tax-exempt purpose or must be directly related to its business operations. “Directly related” encompasses a broad range of activities from meetings and conferences to fundraising, and public relations. However, proper documentation of the business purpose of every event is essential. For IRS purposes, documentation should detail who participated, what the event was, where the event took place, why the event occurred and how much the event cost. IRS policy provides that such documentation must include receipts for any expenditure of $75 or more, but an organization may establish its own lower threshold.
OMB Circular A-122 Cost Principles for Non-Profit Organizations establishes principles for determining reimbursable indirect and direct costs pursuant to federal grants, contracts and other agreements with non-profit organizations and identifies those that are “allowable” for reimbursement. Although not all NPCs administer federal grants, the A-122 cost principles and “Selected Items of Cost” provide useful guidance on what the federal government considers appropriate event and meal expenditures involving federal funds.
In regard to meetings, the circular allows expenses for:
Some, but not all costs associated with public relations events.
Improvement of employee morale and performance consistent with the organization’s established practices.
Meetings and conferences when the primary purpose is dissemination of technical information, or the general administration of the organization, provided that the costs are reasonable, consistent and documented.
Expenses for the following are not allowable on federal grants: Alcohol and “entertainment” including amusements, social activities and ceremonials. Whether an expense is allowable for reimbursement under a federal grant does not alone determine its propriety for an NPC.
NPCs may support events that foster VA education and research in general as well as the business operations of the NPC itself. A documented research, education or business justification should be provided for all expenditures. In addition, when possible, expenditures also should be associated with specific research projects or education activities. However, many acceptable expenditures will be in support of research or education generally, or the overall management of the NPC.
Background on February 21, 2004 Recommendations
In early February 2004, the IG informed then DVA Secretary Anthony J. Principi about the results of an investigation of one NPC’s alleged misuse of funds. The secretary’s response was strongly worded, and he immediately convened a “review group” composed of his most senior officials to advise him on the steps needed to ensure that all NPC expenditures are proper.
The IG investigation was prompted by a hotline call alleging misuse of funds by an NPC and resulted in IG review of two years of expenditures. The IG concluded that a number of expenditures were improper even though most nonprofits would consider many of them to be normal business expenses. NAVREF took exception to three issues in the report:
Throughout, the IG holds that NPCs “exist solely to facilitate research projects and education activities (emphasis added).” This is an overstatement not supported by the NPC authorizing statute or the December 15, 2003 VHA memo which states, “Funds may also be expended to generally further VA’s research and education missions and/or to administer the corporation.” Consequently, some of the expenses the IG found improper were consistent with the broader statutory purposes of the NPCs.
The report maintains that OMB Circulars are not applicable to NPCs because in the IG’s view, the circulars are inconsistent with the “federal law specifically addressing VA nonprofit corporations.” NAVREF sees no inconsistency because the circulars are applicable as the basis for reimbursement under federal grants and OMB A-133 audits. However, circulars are not the only controlling regulations, and whether an expense is allowable for reimbursement under a federal grant does not alone determine its propriety for an NPC. In evaluating expenditures, NPCs must also consider the NPC statute, IRS regulations, federal ethics regulations and state laws. The narrowest guidance applicable to the situation should be applied.
The IG held the medical center director individually responsible for not ensuring that the NPC “furthered the interests of the Department” and recommended administrative action against the director. However, the principle of collective board responsibility is supported by federal and state law and in NAVREF's view, the entire board should be held responsible, and it is inappropriate to single out a single individual for culpability.
NAVREF discussed the IG report with senior VHA management, and participated in efforts to persuade the secretary and others at the highest levels of VA management that IG audits of all the NPCs would not be productive. As a result, NAVREF put together the following recommendations for NPCs.
All NPCs should have explicit business meeting policies and enforce them rigorously. The executive director or designee should review all requests for reimbursement on the basis of policy and guidance established by the board.
NAVREF strongly advises against NPC support for:
Entertainment in any form
Holiday or retirement parties involving meals
Anything that could be deemed purely social, ceremonial or extravagant.
Meals for routine VAMC staff, committee or department meetings
Meals for a single person or group of persons on such a frequent basis that it could create the appearance of using their official VA positions to derive a personal benefit
Even though a meeting with a research, education or NPC business purpose may be appropriate for NPC support, federal ethics regulations or local policy may make it inappropriate for VAMC employees to accept a meal offered in conjunction with the meeting. Consequently, there may be times when the NPC could pay for speaker expenses, AV and refreshments, but perhaps not for meals.
Ensure that the refreshments or meal is incidental to the business purpose of the event. That is, there must be an organized presentation during the meal or a clearly established business reason. Informal networking with facility colleagues is not a sufficient business purpose.
The type of account that is the source of payment (project funds, residual funds or the NPC’s administrative overhead account) is irrelevant in evaluating the appropriateness of supporting a business meeting that may or may not involve paying for meals.
The argument “but the university would pay for this” is not in itself valid justification for NPC payment/reimbursement.
NPCs must ensure that the facility Education Committee reviews and approves all purely educational activities supported by NPC funds.
NAVREF is confident that the vast majority of NPC meeting and conference expenditures are reasonable and proper. However, scrutiny remains high so now is the time for all NPCs to review local policies and ensure that expenditures fulfill the purposes for which NPCs are established - supporting VA research and education.