I am still confused. If the contract says the owner can’t be a relative, then presumably unless there’s been an oversight, if the owner is a relative, they won’t give you the benefit. If you manage to sneak it by them, it’s illegal (I’m not a lawyer, but can’t imagine taking program money on false pretenses isn’t theft) and gezel.
So what situation are we talking about that is not assur and illegal but “smells bad”? I’m not disagreeing with the concept, but what is the application here?
I also don’t know why you, ZD, apply this only to kollel people. Everyone should be honest.