Related Party Transactions Tripping Up the NRA

Ideas and Issues

New Orleans        When it comes to full on violence, the NRA is not “Game of Thornes” or “Barry.”  The National Rifle Association (NRA) likes its guns, but tends to be more of a “throw the rock and hide the hand” operation.  Nonetheless, it’s caught now in its own crossfire that erupted at its national convention when internal conflict became public revolving around Wayne LaPierre, the longtime chief executive, Ackerman, their multi-million dollar public relations, media, and tv contractor based in Oklahoma, and Oliver North, who until a minute ago had been the high profile public figure serving as president of the organization.  LaPierre won this round and forced out North by denying him nomination for a second term after North had demanded that LaPierre resign and offered him a golden parachute to do so.  It couldn’t happen to a nicer group of people.

More interesting is the investigation over the nonprofit tax-exempt status of the NRA in New York State and potentially Texas.  One of the main pillars of the inquiry has to do with what are called “related party transactions.”  The hot sauce underneath this story involves a charge that Wayne LaPierre accepted $275,000 worth of clothing from an NRA vendor over a period of years.  I have to admit my first thought about hanky-panky in the NRA wouldn’t have involved LaPierre’s suits.  This is no Brad Pitt or Adam Driver modeling guy.  Pictures of LaPierre in the paper and on television would have him more in the role of an angry accountant screaming with a mean face at a cashier about a mistake on his restaurant bill.

A related party transaction knocks on the door of something that sounds more ominous which is “self-dealing.”  In business, Wikipedia offers this definition:

“…a related party transaction is a transaction that takes place between two parties who hold a pre-existing connection prior to the transaction. An example is how a dominant shareholder may benefit from making one of their companies trade to the other at advantageous prices.”

Issues that tend to mitigate whether such transactions are problematic tend to revolve around the degree to which any dominance is diluted or exerted for example with common staff or board members.  Nonprofits, such as ACORN were always careful to make sure that a majority of the boards of tax-exempt nonprofits were not the same as ACORN’s leadership, even though there might be representatives of ACORN on the 501c3 board.  The same would be true for shared staff and how any such labor was priced fairly and even making sure that rental arrangements on shared space and cooperative items like xerox machines and phone systems were equitable to all parties.

A central issue is disclosure.  Audits and governmental reports for nonprofits, much like for profit businesses, were careful to disclose related party transactions.  In our annual audits these transactions would sometimes run on for pages.  None of this is either illegal or circumspect.  As details:

There are many types of transactions that can be conducted between related parties, such as sales, asset transfers, leases, lending arrangements, guarantees, allocations of common costs, and the filing of consolidated tax returns.  In general, any related party transaction should be disclosed that would impact the decision making of the users of a company’s financial statements.

The NRA press reports indicate that there is smoke, but it is impossible to tell whether or not there is fire yet.  Did they not disclose related party transactions?  Were the suits an inducement leading to self-dealing or an unfavorable pricing scheme between the vendor and the NRA as the dominant party?  We don’t know.  The NRA says the charges have been internally investigated and found wanting.  New York and its Attorney General Leticia James are going to see if that is in fact the case or not.

Shots are being fired, but we won’t know if they have really hit the NRA near its tax-exempt heart until the smoke clears.