Nonprofits and Conflicts of Interest…

Robin Noah

When was the last time you had to deal with a conflict of interest in your organization? Do the board members recognize when a conflict is present? When was the last time the board reviewed the organization’s Conflict of Interest policy? Do you need a written policy?

Having a written conflict of interest policy can help the organization resolve conflicting issues with the best interest of the organization.

Consider that the new IRS Form 990 asks, specifically, for disclosure of potential conflicts of interest. It not only asks whether the organization has a written conflict of interest policy, but they also want to know if there is a process for managing conflicts and how the organization determines whether board members have a conflict of interest. In other words do you have a written policy and a methods and procedure directive?

The purpose of a conflict of interest policy is to protect the interests of the organization when it is contemplating entering into a transaction or arrangement that might benefit the private interests of an officer or director of the organization or might result in a possible excess benefit transaction. Additionally it needs to state that the policy is intended to supplement, but not replace, any applicable state and federal laws governing conflicts of interest applicable to nonprofit and charitable organizations.

Every nonprofit organization needs a written policy governing conflicts of interests AND it should be reviewed annually.

The policy should 1) require those with a conflict (or who think they may have a conflict) to disclose the conflict/potential conflict, and 2) prohibit interested board members from voting on any matter that gives rise to a conflict between their personal interests and the nonprofit’s interests.  Sometime you need to also write the process for reaching a decision.

Andy Robinson and Nancy Wasserman have written a book –The Board Member’s Easier Than You Think Guide to Nonprofit Finances that I found highly informative. It addresses the issues of conflicts of interest in a practical easy to read style. Readers will get a lot of ideas regarding issues that confront nonprofit organizations

You can round out your information at www.councilofnonprofits.org/conflict-of-interest

Author:  Robin Noah, Executive Coaches of Orange County, www.ECofOC.org