Does Our Nonprofit Organization Need a Conflict of Interest Policy?

June 14, 2018

Nonprofits enjoy the public’s trust, and therefore must comply with a diverse array of legal and regulatory requirements. Organizations should conduct periodic reviews to address regulatory and fiduciary concerns. One of leadership’s fundamental responsibilities is to ensure that the organization governs and operates in an ethical and legal manner. Fostering exemplary conduct is one of the most effective means of developing internal and external trust as well as preventing misconduct. Moreover, to honor the trust that the public has given them, nonprofits have an obligation to go beyond legal requirements and embrace the highest ethical practices. Nonprofit board, staff, and volunteers must act in the best interest of the organization, rather than in furtherance of personal interests or the interests of third parties. A nonprofit should have policies in place, and should routinely and systematically implement those policies, to prevent actual, potential, or perceived conflicts of interest. In this way, ethics and compliance reinforce each other.

Yes, all nonprofits should have a board-approved conflict of interest policy. The policy should be applicable to all board members and staff, and to volunteers who have significant independent decision-making authority regarding the resources of the organization. The policy should identify the types of conduct or transactions that raise conflict of interest concerns, should set forth procedures for disclosure of actual or potential conflicts, and should provide for review of individual transactions by the uninvolved members of the board of directors.

Nonprofits should provide board members, staff, and volunteers with a conflict of interest statement with a summary of the policy and itemized questions to submit upon joining the organization and then annually to disclose any conflicts.

As part of the application for tax exempt status (Form 1023), the Internal Revenue Service includes a series of questions about conflicts of interest and insider transactions to a more extensive series of questions about past, present, or planned relationships, transactions, or agreements with officers, directors, trustees, and the highest compensated employees and independent contractors.

The Form 990 also asks if the organization has a written conflict of interest policy; if officers, directors, trustees and key employees are required to disclose conflicts under the policy; and, how the organization consistently monitors and enforces the conflict of interest policy. Although not required by federal tax law, the Form 990 also requests information as to whether an organization makes its conflicts of interest policy available to the public.

For access to resources like our Sample Conflict of Interest Policy and Disclosure Statement and our Conflicts of Interest Educational Resource Packet and other resources, join Maryland Nonprofits today!

From the Standards for Excellence®: An Ethics and Accountability Code for the Nonprofit Sector. The Standards for Excellence code, developed by the Standards for Excellence Institute, includes specific benchmarks and measures that provide a structured approach to building capacity, accountability, and sustainability in your nonprofit organization. The code identifies 6 major areas of nonprofit governance and management: Mission, Strategy, and Evaluation; Leadership: Board, Staff, and Volunteers; Legal Compliance and Ethics; Finance and Operations; Resource Development and Fundraising; and Public Awareness, Engagement and Advocacy.

The Standards for Excellence® Institute, a program of Maryland Nonprofits, provides the best possible resources to nonprofits nationwide, helping build their capacity to effectively and efficiently meet the needs of their communities. Members of Maryland Nonprofits gain access to an online community with an expansive library of resources and customizable templates. Membership with Maryland Nonprofits is designed to help you raise more money, develop your board, build relationships, learn, save on the things you need to run your organization, and amplify your voice in Annapolis. Join today.