Conflicts of interest can and do occur within nonprofit organizations. Most often, they’re not intentional. That said, it’s everyone’s responsibility to be aware of the possibility of conflicts of interest and for bringing them out into the open to protect the integrity of the organization. The key to addressing potential or real conflicts are awareness and encouraging disclosure. It’s vital for nonprofit boards to consistently encourage a culture of candor where people within the organization have a comfort level with discussing anything that has the potential for a conflict of interest.
What should a conflicts of interest policy include? A policy on conflicts of interest should (a) require those with a conflict (or who think they may have a conflict) to disclose the conflict/potential conflict, and (b) prohibit interested board members from voting on any matter in which there is a conflict.
Beyond including those two basic directives, each nonprofit needs to determine how the board will manage the conflict.
Keep in mind that the IRS Form 990 asks not only about whether the nonprofit has a written policy on conflicts of interest, but also about the process that the nonprofit uses to manage conflicts, as well as how the nonprofit determines whether board members have conflicting interests.
Some state laws governing nonprofit corporations include provisions describing what must be included in a nonprofit's conflict of interest policy, or how conflicts are to be managed. For example, New York law requires nonprofits to have a conflict of interest policy and the state law also provides guidance for drafting the policy, which must state that directors, officers and key employees are to act in the "best interest of the nonprofit." New York law also requires nonprofit boards to adopt a process so that board members can annually disclose potential conflicts.
Often people are unaware that their activities or personal interests are in conflict with the best interests of the nonprofit so a goal for any organization is to simply raise awareness, encourage disclosure and discussion of anything that MAY be a conflict, and constantly encourage a “culture of candor.”
Conflicts can be nuanced and have more to do with a “duality of interests” than a financial conflict. Here's an example of a conflict policy that explicitly acknowledges how the nonprofit will address duality of interests.
Many charitable nonprofits make it a regular practice to take time at a board meeting at least once a year to discuss the types of hypothetical situations that could result in a conflict of interest, and then discuss how the board would manage that potential conflict, so that when a real conflict arises the board will be ready to handle it with more ease.
Minutes of board meetings should reflect when a board member discloses that s/he has a conflict of interests and how the conflict was managed, such as that there was a discussion on the matter without the board member in the room, and that a vote was taken but that the board member abstained.
Many nonprofits circulate a questionnaire each year to find out whether any board member (or volunteer staff member) has a conflict of interest. Typically the questionnaire asks board and staff members to disclose existing conflicts and reminds them to disclose any that may crop up in the future.
Conflicts of interest can and do occur within nonprofit organizations. Most often, they’re not intentional. That said, it’s everyone’s responsibility to be aware of the possibility of conflicts of interest and for bringing them out into the open to protect the integrity of the organization. The key to addressing potential or real conflicts are awareness and encouraging disclosure.
It’s vital for nonprofit boards to consistently encourage a culture of candor where people within the organization have a comfort level with discussing anything that has the potential for a conflict of interest.
A conflict of interest questionnaire will protect your board and organization from any liability issues that could arise from a conflict of interest. Something else that makes a conflict of interest questionnaire so important is that it helps protect your nonprofit’s reputation. What Constitutes a Conflict of Interest in a Nonprofit? Let’s be clear on who the conflict of interest applies to. It applies to board members, Directors, and volunteers that work on behalf of your nonprofit organization.
And, let’s also be clear on how to define a conflict of interest. A conflict of interest exists when a board member, officer, staff member, or volunteer has a vested interest in money, status, relationships, or reputation that has the potential to compromise their actions, judgment, or decision-making. It’s crucial for nonprofit boards to identify and address conflict of interest situations because the conflict could render a person’s role in a nonprofit decision unreliable.
Documenting Your Conflict of Interest Policy Properly The main reason that it’s so important to have a formal conflict of interest policy and enforce it is that it prevents decision-makers from voting on issues that could cause them to be partial and unfair.
Once you draw up your formal conflict of interest policy and questionnaire, you need to put them in writing and have the board approve them. It’s considered best practices to review your conflict of interest at least annually to ensure they’re relevant for the current time.
Each person should sign the questionnaire that they understand what a conflict of interest is and that they understand the rules regarding it. In signing the form, they agree that they’ll comply with it to the best of their knowledge and will notify the board as soon as possible if their circumstances change.
Documentation in cases of conflicts of interest is very important. Document all instances of conflicts of interest in your board meetings minutes. The details should include:
Who had the conflict
How the conflict was managed
The results of votes that were taken about the conflict
Take note of the fact that the person that has the conflict shouldn’t be in the room during discussions about the conflict and should also abstain from any votes regarding it.
Sample Nonprofit Conflict of Interest QuestionnaireName of board member, Director or volunteer_______________________________ Title of position__________________________________________ A conflict of interest occurs when you become unreliable because of a conflict between personal interests and professional duties or responsibilities. A conflict occurs when you have a vested interest (i.e. money, status, relationships, reputation) that puts your actions, judgment, or decisions into question.
This information will not be used or disclosed for any other purpose than determining whether a conflict of interest exists. You are only required to sign this questionnaire once a year.
List any employers or others that you have provided goods or services within the past two months. (applies to those that contributed over 25% or more of your total yearly income)
Are you or have you been a member of the board of directors, an officer, or principal of any corporation, company, association, institution, or other business within the last year? If so, please name the organization and the position you held.
Other than incidental ownership, do you, or does any member of your immediate family have direct or indirect ownership of other financial interest in any corporation, company, institution, or other business? (incidental refers to less than 10% ownership of the voting stock or other voting rights)
Did any member of your immediate family receive any gifts, in-kind support or services, reimbursement, loans, or other benefits from any corporation, company, associate, institution or other business in excess of $1000 excluding honorariums within the last year?
Are you aware of any past or prospective involvement by you in activity within the past year, or will be in the next year, that could be reasonably interpreted as a possible conflict of interest or could reasonably be viewed as having an appearance of a divided interest or loyalty on your part? If so, please describe.
Do you have a current engagement with an employer or organization that assigns any or all copyright, intellectual property rights, or other writing you may create to them over the course of the next year? If yes, attach a copy of the agreement.
Do you have any private business activity or personal services with this organization? If so, please explain.