While federal law allows nonprofits to hire insiders if they properly disclose the payments and ensure the insiders do not overcharge, Linda Sugin says it can still be risky. Read her comments in Right-Wing Nonprofit Paid Millions to Companies With Ties to Insiders.

“You have an obligation to behave in the interest of that organization,” said Linda Sugin, a professor of nonprofit law at Fordham University. “The problem is, when you’re on both sides of the transaction, then we’re skeptical that you’re going to put the organization’s interests before your own.”

Ms. Sugin said the institute could have reduced its risk by soliciting bids from competing firms to gauge whether the insiders were charging market rates. The institute could have asked its leaders to recuse themselves from the decision to hire their own companies, she said.