How to Implement a Nonprofit Conflict of Interest Policy

How to Implement a Nonprofit Conflict of Interest Policy

How to Implement a Nonprofit Conflict of Interest Policy

The integrity of your nonprofit is everything. It’s been well-documented that a number of people use their power within a nonprofit organization for personal gain, whether financial or otherwise. Because of this, it’s important to address your conflict of interest policy and be prepared to go in-depth about your course of action should a conflict of interest occur. It’s unfortunate those who abuse their power create an atmosphere of mistrust around the real work people do for their communities through nonprofit work, but in the same breath, it’s better to be safe than sorry. 

…So what exactly is a conflict of interest?

As a general term, a conflict of interest is any situation in which someone’s personal interests could get in the way of their ability to make unbiased decisions. It doesn’t inherently mean someone has done something yet, but it’s paramount that things like this are taken care of before any damage is done. Here are some examples of what conflicts of interest might look like in the nonprofit sector:

  • Hiring or pushing to promote an underqualified relative or friend.
  • Not investigating harassment accusations because the accused is well-liked or a friend.
  • Someone in financial power skimming money for their own personal gain.
  • Accepting or giving any form of bribes to push for policy changes within your organization or within local government.

Conflicts of interest take on many forms and there’s no real quick and easy rule for every situation. Sometimes we can get nervous about certain situations and get ahead of ourselves, so implementing a conflict of interest policy makes it easier to outline when to take action against a potential conflict of interest. Just remember: a conflict or the potential for one on its own is not automatically a conflict of interest.

What is a Conflict of Interest Policy?

A conflict of interest policy is a set of guidelines that outline the process of addressing conflicts of interest. The purpose is to greatly reduce guessing games when it comes to noticing and taking action upon a conflict of interest. Your policy should discuss when it’s appropriate to move someone to a new department, how to lead an investigation while paying attention to an employee’s legal rights, when to terminate an employee or proceed with legal action, and everything in between. 

Why is Conflict of Interest so Serious For Nonprofits?

Nonprofits work off of a public image and have to have a trustworthy and positive reputation. People and organizations don’t want to associate with a nonprofit that’s known for having poor management, giving bribes to politicians, or allowing their donations to be freely given away at the mercy of whoever was in accounting at that time. Nonprofits are supposed to help the community and many conflicts of interest do quite the opposite. 

Not only can your public image become tarnished in the event of a conflict of interest, but the IRS will notice too. You can easily lose your tax exception status as a nonprofit by facilitating or failing to notice a conflict of interest. Since you’ve pledged to help your community, you have the privilege of not paying taxes to do so, and that can easily disappear when you’ve hurt your community through conflicts of interest. In fact, you must show the IRS that you have a formal conflict of interest policy to be in compliance with your tax exemption status.

Forming a Conflict of Interest Policy

To start forming your conflict of interest policy, you must look at the laws in your area first. Certain states have specific laws in place that outline how conflicts of interest should be handled. Next, you’ll want to start the actual policy making. For many smaller organizations, you can get a simple template that helps you through the process. 

A lot of the beginning of a conflict of interest should include awareness and education. This will become a legal document that your staff will sign in order to acknowledge they’ve read and understand what your organization’s policies are. Explaining what a conflict of interest is, addressing who the conflict of interest policy is for (it’s for everyone but being specific is important), explaining why a policy is important, and anything else that immediately dispels any confusion about your policy and its purpose. 

Next, you’ll begin outlining your disclosure policies. You should mention that, upon finding a conflict of interest, the person who discovered it needs to report it immediately, as any waiting period on their part could indicate foul play with them as well. Post-disclosure, you’ll want to get into the next steps. The person or persons involved in the conflict of interest should be excluded from voting while there’s an ongoing investigation. You can also discuss things that are always a conflict of interest, such as sending or receiving money between a member of your organization and a politician. 

When you’ve discussed the specific conflicts of interest to look out for, you can move on to how they’ll be handled. You can talk about how voting will be carried out, proper documentation for evidence, and any other approval procedures. You should also talk about the appropriate steps during any discussions for compensation. At the end of your policy, be sure to have your staff sign to acknowledge they’ve read all the information and understand it. 

Disclosing Conflicts of Interest

Openly disclosing conflicts of interest to your staff as they happen is important to protecting your organization. It should acknowledge the issue, how soon it was discovered, and what action was taken to remedy the situation. For smaller conflicts of interest, you don’t need to do this immediately, but it’s good practice to mention it annually to show that you’re on top of what goes on in your organization. You can also use this time to remind your staff of your conflict of interest policy. 

Final Thoughts on Nonprofit Conflict of Interest Policies

Conflicts of interest are bound to happen in any organization. Creating a comprehensive and concise conflict of interest policy will help your nonprofit avoid problems with your public image or the IRS. The education you provide your staff and assurance that conflicts of interest will be handled gives everyone peace of mind so you can get back to serving the communities you care for the most.

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