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Kappa Sigma doesn't have a "Chapter of the Year" award, but it has a couple of different levels of awards that chapters could win. The first level is the FACE award (Founders Award for Chapter Excellence), which goes to something between 10-20 chapters. Then, there is the Founders Circle Award, which only goes to about a handful of chapters.
When I was in school (and later when I was an assistant alumnus advisor) it had to do with a combination of factors dealing with all aspects of chapter operations. I'm not sure of the particular standards these days.
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