Why Your Nonprofit Organization Needs a Conflict of Interest Policy and How to Start One Today

Are you one of the few nonprofit organizations without a conflict of interest policy in place? Studies show that over 95% of nonprofit organizations employ a conflict of interest policy–and with good reason. These policies offer nonprofit organizations ethical standards and protection to ensure all actions on behalf of the organization are transparent and free of potential ethical dilemmas. In this article we’ll be covering the benefits of setting up a conflict of interest policy at your organization and how you can start the process today.  

What is a conflict of interest policy?  

To fully understand what your policy will look like, it is essential to understand what constitutes the term “conflict of interest.” A conflict of interest is anything that can be considered providing you either a personal or professional advantage at the expense of your organization, or actions that contradict your organization’s values. 

A conflict of interest policy is a vital part of your organization’s internal controls to reduce potential fraud. This type of policy will ensure that, if a situation arises, there is an established process on what constitutes a conflict of interest and how to handle these within the organization. 

Why does your organization need a conflict of interest policy?  

Conflict of interest policies seek to work preventatively to show the general public that the potentially conflicting interests of the organization are being identified and managed. This can assist your organization in avoiding potential litigation and other business risks. Common ethical pitfalls–such as nepotism, risky business transactions, and embezzlement–are sadly not uncommon among organizations and can be addressed preemptively in your policy.  

For nonprofits, it is important to identify conflicts of interest that may occur with board members and employees. Certain relationships and interests that board members and employees have outside of the nonprofit may appear to be conflicts and should be reviewed. The fact that a conflict may exist does not mean that something is amiss. Many conflicts simply need to be reported or can be mitigated easily such as through recusal during a voting or decision process. By reporting all possible conflicts of interest, your organization can be a step ahead in assuring the public of your trustworthiness, as well as your values of transparency, trust, and responsibility for any funds and donations it manages.  

This is critical to maintain your credibility in your space and can work in tandem with other transparency-building measures, including:  

• Regular public funding allocation data 
• Publicized data on initiatives and progress 
• Updated conflict of interest policy on a regular basis

How can you create a conflict of interest policy for your organization?  

It is beneficial to include your team members in this process to define what a conflict of interest policy should look like at your organization. This can help with your team’s awareness of the risks and appropriate risk-reducing measures. 

When creating your policy, ensure that your measures have the organization’s needs in mind. It is crucial to be as honest and comprehensive in your risk assessment as possible. 

Bear in mind that you and other organization leaders may be asked to detail your process of ethical conflict resolution on certain IRS forms. For transparency purposes, you should seek to include that information in your conflict of interest policy, which may include:  

• Methods of conflict resolution 
• Details of potential conflicts 
• Communication procedures for public parties or other associated entities 

As you work to craft the phrasing of your policy, it is also important to think of the document as a living document. It should therefore be reviewed semi-annually to ensure all points on the document are relevant and up to date. 

According to the National Council of Nonprofits, another preemptive step to take would be to survey your board members and employees anonymously on an annual basis to identify if anyone has come across a conflict of interest issue or believes amendments to the current policy are necessary.  

Including your staff members in policy creation can boost morale, encourage collaboration, and reduce turnover. 

It is also beneficial to seek legal assistance when creating your organization’s policy or other public-facing documents if you have the resources available. Your policy should take into consideration governmental and applicable state laws. Your legal aid or resource can assist you in ensuring your policy encompasses all potential ethical risks. 

Take the steps now to create a better tomorrow. 

Taking steps to assemble your organization and ensure financial transparency can be tricky, but you don’t have to do it alone. The experts at Chazin & Company seek to help you build your business ethically and efficiently. Our nonprofit accounting and consulting services provide your organization with the foundation it needs to ensure transparency and financial accuracy. For more information, please schedule a consultation below. We look forward to hearing from you!