What is a Conflict of Interest Policy? (Overview, Definition, and Examples)

  • By: Gina Guy
  • January 25, 2023
Conflict of Interest on Nonprofit Boards
Reading Time: 3 minutes

A nonprofit conflict of interest policy keeps nonprofits legally compliant, protects the organization’s reputation, and builds trust with donors.

When a conflict of interest occurs, it damages a nonprofit organization’s reputation and weakens donor trust. A nonprofit conflict of interest policy protects your nonprofit board of directors and helps to ensure ethical operations. 

Among the many nonprofit board responsibilities is creating a conflict of interest policy. Read on to learn what a conflict of interest policy should include and why your organization needs one.

What is a Conflict of Interest Policy?

According to the IRS, a conflict of interest policy is a formal set of guidelines “intended to help ensure that when actual or potential conflicts of interest arise, the organization has a process in place under which the affected individual will advise the governing body about all the relevant facts concerning the situation. A conflict of interest policy is also intended to establish procedures under which individuals who have a conflict of interest will be excused from voting on such matters.”

Besides reputational effects, a nonprofit conflict of interest policy is a legal requirement in some locations. Failure to comply can result in a loss of nonprofit status or other penalties. For example, the IRS may audit a nonprofit if it determines a board member received an excessive benefit from a transaction. In extreme cases, an audit may result in a loss of non-exempt status.

What to Include in a Conflict of Interest Policy

Some states require certain information to be included in a conflict of interest policy. Depending on its location, a nonprofit may find a conflict of interest policy example on a state website. Policies should include the following:

  • Statement of Purpose
  • Definition of Terms
  • Examples of Conflicts
  • Disclosure Procedures
  • Violation Consequences

Board members should sign and date the policy to confirm they received a copy. 

When it comes to disclosure procedures, the National Council of Nonprofits recommends including these two directives:

  1. Require those with a conflict of interest (or who think they may have a conflict) to disclose the conflict/potential conflict
  2. Prohibit interested board members from voting on any matter in which there is a conflict 

Creating a conflict of interest policy doesn’t have to be challenging. The corporate governance committee can leverage nonprofit board technology designed to simplify and streamline the creation, storage, and distribution of policies. Get started with the conflict of interest policy example below.

Conflict of Interest Policy Example

This example outlines the components of a conflict of interest policy.

  1. Purpose

Use this section to state why your organization created the policy, what it contains, who it protects, and the consequences for breaking it. 

  1. Definition of Terms

Define the key terms in your conflict of interest policy, such as employee, agent, financial interest, and conflict.

  1. Procedure

Outline the procedure your organization will use for conflicts, which should include duty to disclose, investigation process, how your organization plans to address conflicts, and what disciplinary action will be taken if a conflict of interest arises.

  1. Acknowledgement

This is where your employee will sign and date the policy, acknowledging they read and understood its contents. 

Board Meeting

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OnBoard Improves Boards Effectiveness

With the OnBoard board intelligence solution, nonprofits can store their conflict of interest policy, board bylaws, and other sensitive resources in a central, secure platform. 

OnBoard comes equipped with the following board management features, among others:

  • Industry-leading security, compliance, and data protection that’s certified and accredited
  • Agenda Builder and Minutes Builder for simplified meeting administration
  • Secure Messenger and Zoom Integration to enhance communication
  • Board Assessments to empower boards to measure their performance against the organization’s goals

Ready to empower your board with the tools it needs to succeed? Check out our Board Management Software Buyer’s Guide for information on selecting a board management vendor that will make your board happy and keep meetings focused on strategy.

Frequently Asked Questions (FAQ)

  • What Makes a Good Conflict of Interest Policy?

    A good conflict of interest policy enforces disclosure as soon as the conflict arises. It also prohibits conflicted directors from being involved in making decisions concerned with a matter that caused the conflict.

  • How Do You Create a Conflict of Interest Policy?

    Essential elements of the policy should include: 

    • Outline the policy's purpose
    • Define specific terms in the policy 
    • Describe the procedure of disclosing the conflict, investigating it, and addressing it
    • Include the acknowledgment section to confirm that the intended people received, read, and understood the policy document.

  • Are Conflicts of Interest Policies Required for Nonprofits?

    In some locations, the law requires nonprofits to have conflict of interest policies.

Board Meeting

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Ready to upgrade your board’s effectiveness with OnBoard the board intelligence platform? Schedule a demo or request a free trial

About The Author

Gina Guy
Gina Guy
Gina Guy is an implementation consultant who specializes in working with nonprofit organizations get the most from their board meetings. She loves helping customers ease their workloads through their use of OnBoard. A Purdue University graduate, Gina enjoys refinishing furniture, running, kayaking, and traveling in her spare time. She lives in Monticello, Indiana, with her husband.