Overview
During the audit period, Fall River Line Pier, Inc. (FRLP) paid 30 expenses, totaling $187,921, to five companies in which four board members had financial interests.
FRLP Board Members with Financial Interests in External Companies
| Company | FRLP Board Member’s Relationship to Company | Number of Transactions During the Audit Period | Total Amount | Was There Evidence that FRLP Discussed Potential Conflict of Interest? | Was There Evidence that FRLP’s Board Voted and Approved the Transactions? |
|---|---|---|---|---|---|
| Company A | On the company’s board | 22 | $ 174,269 | No | No |
| Company B | Relative is the owner | 2 | 5,750 | No | No |
| Company C | Owner | 1 | 3,466 | No | No |
| Company D | Relative is the owner | 1 | 2,945 | No | No |
| Company E | Owner | 4 | 1,491 | No | No |
| Total | 30 | $ 187,921 |
Further, FRLP did not produce evidence that all 18 board members signed annual Conflict of Interest Acknowledgment Forms, disclosing any financial interest in companies doing business with FRLP during the audit period. In addition, we did not find any evidence of board discussions regarding these transactions.
It is unclear whether the board considered whether these transactions presented conflicts of interest, or whether it determined whether the transactions were in the best interests of FRLP. This could create the appearance of conflicts of interest, if not outright conflicts of interest, which undermines the public’s faith in the government(s) that contract with FRLP and of FRLP’s work as a government contractor. Given the nature of FRLP’s mission and business, this can have a negative impact on its current and future revenue, as potential customers may perceive that they would not receive fair treatment from the agency and may seek to do business with other entities.
We note that our most recent audit of FRLP, issued on June 11, 2020, found similar conflict of interest concerns, which were at that time related to three board members and $121,874 in payments.
Authoritative Guidance
Section 6C of Chapter 180 of the Massachusetts General Laws requires that board members act in good faith and in the best interests of the corporations for which they serve.
A director, officer or incorporator of a corporation shall perform his duties as such, including, in the case of a director, his duties as a member of a committee of the board upon which he may serve, in good faith and in a manner he reasonably believes to be in the best interests of the corporation, and with such care as an ordinarily prudent person in a like position with respect to a similar corporation organized under this chapter would use under similar circumstances.
The [Massachusetts] Attorney General’s Guide for Board Members of Charitable Organizations serves as a guide of best practices for nonprofits. The guide suggests the following regarding how boards should govern organizations:
VIII. BEWARE OF CONFLICTS OF INTEREST
As a member of the board, you may find yourself in situations in which your board service conflicts with another aspect of your personal or professional life. For example, you, a business you control or benefit from financially, [or] a member of your family . . . may be considering whether or not to engage in a transaction with the organization on whose board you are sitting. . . . Situations such as these present a potential conflict between your own interests and your duty as a board member to be absolutely loyal to the organization and its mission.
. . . Such a transaction should not occur unless the board determines it is clearly in the best interest of the charity. . . .
Any conflicted transaction should be scrutinized very closely by the board . . . because of the predictable skepticism with which the public and regulators will view the transaction.
Reasons for Issue
Through our review of the five board meeting minutes documented during the audit period and our inquiries with members of the consulting firm, we found that the board never officially approved policies and procedures developed for various financial activities, including conflicts of interest, travel, donations, and accounts receivable. We recommended the development and implementation of these policies in our June 11, 2020 audit of FRLP.
Recommendations
- FRLP should formally establish and implement policies and procedures related to its financial activities, including conflicts of interest, travel, donations, accounts payable, and accounts receivable.
- Board members should declare in writing their potential conflicts of interest, should notify the board of transactions that pose a potential conflict of interest, and should recuse themselves from any participation in these transactions. The board should vote on whether said transactions are in the best interests of FRLP before engaging in these transactions. Given the extensive nature of the problems we found, we recommend that each board vote includes a certification from each board member that they are free from any conflict of interest for each vote.
Auditee’s Response
In its response to this audit report, FRLP provided background information on its conflict of interest policy. See the Appendix for more information on this.
Company A: As noted above and as you are aware, a newly constituted FRLP Board of Directors was established in October 2021. It should be noted that prior to October 2021 all past members of the FRLP had resigned or their terms had expired. In early 2021, the FRLP Board of Directors was virtually non-existent and had not met in a number of months.
In April 2021, the Pier Manager abruptly resigned leaving the FRLP with no short tern or long-term management capacity. In an emergency action, the President of the FRLP and Mayor of the City asked that COMPANY A temporarily assume the management responsibilities of the Pier Corporation. This was done without a FRLP Board vote and COMPANY A has served in a temporary management capacity to the FRLP since that time. At this time, there was no Conflict of Interest or appearance of a Conflict of Interest since the FRLP Board was essentially defunct and COMPANY A fulfilled this role at the request of the FRLP President and the Mayor of the City of Fall River neither of which had any standing on the COMPANY A Board.
Furthermore, COMPANY A had the demonstrated management capacity to undertake this task and bought their entire management team to the FRLP for a fee less than what was being paid to the Pier Manager, so there was no unjust enrichment. As noted above, in February 2022, MassDevelopment requested that FRLP continue to serve as its agent, manage the State Pier and work closely with MassDevelopment. Since April 2021 COMPANY A has provided management services to the FRLP and has increased the net income profitability of the Fall River Sate Pier from $60,366.50 in 2021 to $224,888.89 in 2024.
Companies C and E: In response to your finding, Company C and Company E no longer have any affiliation with the 2021 FRLP Board of Directors and any conflict of interest detected for these Companies preceded the post 2021 FRLP Board of Directors. The balance of the FRLP Board Member’s relationships have been disclosed and will be addressed at the next board meeting.
Companies B and D: Post 2021, all transactions between the FRLP and Companies B and D represented fair market value and neither the volunteer Board Members nor the companies received direct compensation for the transactions. The costs associated with the provision of services provided by Companies B and D were far less than the services provided by Company C. Conflict of Interest practices have been established in draft form to be discussed with the Board of Directors and Conflict of Interest forms have been executed by the current Board and will be executed annually by all board members moving forward.
Auditor’s Reply
FRLP attempted to explain why the conflicts of interest identified in this report are not concerning. However, in each case, FRLP failed to address the main issue; namely, there were no documented disclosures regarding board members of FRLP who had affiliations with organizations that were doing business with FRLP. This issue is compounded by the fact that FRLP was unable to provide evidence that each of its board members had signed annual Conflict of Interest Acknowledgment Forms, disclosing any financial interest in companies doing business with FRLP during the audit period.
In its response, FLRP stated,
There was no Conflict of Interest or appearance of a Conflict of Interest since the FRLP Board was essentially defunct and COMPANY A fulfilled this role at the request of the FRLP President and the Mayor of the City of Fall River neither of which had any standing on the COMPANY A Board.
We note that a conflict of interest can exist, regardless of the status of the FRLP board. The involvement of the FRLP president and/or the mayor does not extinguish conflict of interest concerns regarding the company and its board member serving a dual role as board member of both Company A and FRLP, especially when these two organizations conduct business with each other. Additionally, FRLP claims that the FRLP board was defunct, and so, the FRLP president and the mayor of Fall River made the decision to hire Company A in a temporary management capacity of the pier. However, we saw no evidence that the board ever voted to approve Company A for this role. FRLP has an obligation to take a vote as soon as the board reconvenes to approve the decision to hire such a company, especially one that serves in such a key role as the manager of the pier.
FRLP cited changes in the board members during the audit period and explained that the board no longer does business with some of the companies identified. Further, FRLP suggested that conducting business with some of these companies represented fair market value. All of this may be true. However, we did not see any evidence of a discussion or a pricing comparison by FRLP in any of the board meeting minutes. This does not explain the issues identified in the finding. We strongly encourage FRLP to implement all of our recommendations. We will follow up with FRLP in approximately six months to assess its progress in addressing these issues.
| Date published: | April 16, 2025 |
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