Establishing a Conflict of Interest Policy

Due to the very nature of nonprofit organizations, they can be particularly vulnerable to conflict of interest issues and risk losing their tax-exempt status if they do not have a clear policy established. Nonprofits rely on public perception for much of their success and the use of volunteers that wish to help the organization. If there is even a perceived conflict of interest, it can be very damaging to the nonprofit.

A conflict of interest occurs when any member of your nonprofit stands to potentially

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benefit from a transaction with your organization. This may be in the form of a service provided, or even renting space from a member. Although it is not illegal to do so, the means by which the transaction is carried out must be in the best interests of the nonprofit and not the member’s personal interests.

It is not required by law for a nonprofit to have a written conflict of interest  policy. However, the newly-revised IRS Form 990 does require disclosure of potential conflicts of interest, as well as your organization’s practices with handling conflicts and how they are identified.

A clearly-defined conflict of interest policy should include detailed information about any potential conflicts of interest, as well as a reporting procedure if a conflict is suspected. Statements made by board members should be included in the board roster to provide full disclosure, and voting practices should be outlined to preclude those with a potential conflict to reduce the appearance of impropriety. Your policy should be reviewed annually, and all board members should be encouraged to report potential conflicts as a regular practice with the details included in the minutes of your meetings. This will create a culture of integrity and transparency within your nonprofit.

Lamb Financial Group provides risk management services, as well as insurance solutions for nonprofits and social services organizations. If you have any questions or would like more information, please call us at 866-481-5262 or contact us.

Please share with us your experiences in creating a conflict of interest policy for your nonprofit organization in the comments below.

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