Monday, June 14, 2010

Does Your Organization Have a Written Conflict of Interest Policy?

Monday, June 14, 2010
Any organization that has had to prepare the new Federal Form 990 has seen this question - page 6, Section B, item 12a. Furthermore, if your organization does have a written conflict of interest policy, "are officers, directors or trustees, and key employees required to disclose annually interests that could give rise to conflicts?"
What is a conflict of interest, and why do I need a policy for this?
Back in January 2010 my first blog addressed Board governance, describing a Board member's fiduciary responsibility to protect the assets of the organization it serves, which includes putting the interests of the organization ahead of his or her own personal interests. If a Board member or staff member in a decision making role has a personal interest that conflicts with the interests of the organization it serves, and he or she may be influenced by that personal interest when making a decision for the organization, there is a conflict of interest (Board Source, Managing Conflicts of Interest: A Primer for Nonprofit Boards, 2006). This conflict could potentially prevent the Board member from fulfilling his or her legal and fiduciary responsibilities, and ultimately jeopardize the organization's tax exempt status.
The following are a few simple examples of potential conflicts of interest:
  •  the organization rents office space in a building owned by a board member or related family member;
  • the organization purchases goods or services from a company owned by a board member or related family member;
  • a board member serves on the Board of more than one nonprofit organization, and has to approach the same donors for a substantial contribution on behalf of both organizations;
  • a key staff member or volunteer accepts a gift from a vendor which does business, or seeks to do business, with the organization.
Public confidence is important to most nonprofit organizations. Even the appearance of impropriety could be damaging to the reputation of the nonprofit organization. Creating a written conflict of interest policy based on the needs and circumstances of the organization can help prevent actual conflict of interest situations. A conflict of interest policy should apply to all Board and staff members, as well as certain volunteers. Each member and volunteer should agree in writing to uphold the policy.
Key elements of a written conflict of interest policy include:
1. Full disclosure of the potential conflict (known relationship/interest)
2. Board member abstention from discussion and voting when it pertains to transactions involving the potential conflict (known relationship/interest)
3. Staff member abstention from decision-making when it pertains to transactions involving the potential conflict (known relationship/interest)
A written conflict of interest policy should require full disclosure from each new Board and staff member and each new volunteer at the time he or she first becomes associated or involved with the organization, and then it should be required annually. The policy should also require members and volunteers disclose conflicts that may arise during the year as soon as they are known. Making this an agenda item for each board meeting would help the Board keep abreast of potential conflicts that may arise throughout the year. Once these disclosures are made, they need to be independently reviewed and approved perhaps by the Executive Committee or some other similar Committee of the Board of Directors.
If you have questions about situations in your organization that may appear to be conflicts of interest, or if you want assistance in creating a written conflict of interest policy for your organization, please contact Elko & Associates Ltd. Remember, even the appearance of impropriety could damage the organization's reputation as well as jeopardize the organization's tax exempt status. So address those potential conflicts of interest now!

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