Your conflict of interest (COI) policy is one of the most important policies that your non-profit organization should have in place. It’s a critical document needed to protect your organization, your board members, your staff, your partners, and your funders.
What is a conflict of interest?
A conflict of interest occurs when a staff or board member has a personal interest that conflicts with the interests of the organization. This type of conflict can arise from a duality of interest or divided loyalties, particularly when the situation can lead to a financial gain for a person in authority.
For example: John Doe is a board member of XYZ Nonprofit. John’s wife, Jane, sells A-Brand computers. Historically, XYZ Nonprofit has used B-Brand computers, but have decided to explore other options. John has a conflict of interest in this decision, because his family will receive financial gain if XYZ Nonprofit decides to purchase A-Brand computers. Because of this, John should not be involved in this decision-making process in any way.
Who can be affected by this policy?
In most cases, people who are affected by a COI policy will be board members, officers, and senior staff. In some instances, a major donor could also be in a conflict situation.
The Internal Revenue Service (IRS), via Form 1023, requires and outlines the purpose of a conflict of interest policy. Recognizing the importance of conflict that may benefit individuals in authoritative positions, they take this oversight role particularly seriously. Their goal is to help organizations establish policies that protect against charges of impropriety involving officers, directors, or board members (click here to see a COI policy example from the IRS).
There are a few important steps to keep in mind as you create, update, or redefine your COI policy:
- Create your policy with clear and concise definitions and/or examples of conflicts
- Develop procedures that include the steps involved in complying with your policy and the IRS (this should at least include current and new key staff, board members and committee members)
- Ensure confidentiality from all staff, board members, and committee members regarding sensitive and confidential information
- Review the policy annually with your organization’s staff, board members and committee members
- Ensure that each member signs and dates the policy as required in your written procedures
An effective COI policy is extremely important for the integrity of your nonprofit. Not only does it ensure fair practices, but it protects your organization from fraud. Take great care in creating your policy, ensure that you abide by the IRS requirements, and include clauses specific to your organization.
Want to learn more about the policies and procedures your organization needs to run effectively, and how Mission Edge can help? Contact James Masias at JamesM@missionedge.org.