Conflict of Interest Policy: Is Your Nonprofit Covered?
Foundations are demanding greater accountability and transparency to ensure that ministries avoid conflicts of interest within the organization. In recent years we have seen a number of high profile and embarrassing events featuring ministries acting more like big business than the hands and feet of God. Many of these events were caused by conflicts of interest within the organization related to board structure, salaries, organization founders, contract awards, and other issues that could have been prevented by having an established conflict of interest policy. But even if your ministry or nonprofit isn’t a large organization (maybe you’re still getting started as a one-person show), you should still be focused on financial accountability.
Your ministry must do what it can to prevent conflicts of interest. Like the name suggests, a Conflict of Interest Policy sets forth clear and concise regulations safeguarding the organization from bias. Conflicts can be in the form of financial interest, organizational activity, or procedural planning. While no organization plans to face a conflict of interest, having a detailed written policy in place is essential as issues will inevitably surface at some point in the ministry’s history. Instituting the policy sooner rather than later will save the organization a lot of headache.
A Conflict of Interest policy does not propose or intend to preclude a conflict of interest from occurring. For some nonprofits in small communities, a member of the board may also be the owner of a business that provides a service or product the nonprofit needs. An effective policy provides guidelines on how to manage a potential conflict of interest and minimize any improper conduct that may arise as a result. Organizations without these procedures are often lost as to how to address issues and the lack of a policy can often split the board and cause dissension. Clearly, this can set a ministry up for serious problems.
The Evangelical Council on Financial Accountability (ECFA) recommends that board members guard against possible bias or improper conduct by adopting a full disclosure policy; requiring board members to abstain from discussing and voting when they have a possible conflict of interest, and removing staff members from decision making roles.
A full disclosure policy will require each member of the board to quickly and completely disclose any potential relationships or financial gains that can be realized as a result of board action. After disclosing the potential conflict the board member should excuse themselves from voting, participating in discussions, and being present during discussions or votes on the related issue. Staff members have a built in conflict of interest as they receive a direct financial benefit by belonging to the ministry and should therefore serve only as a non-voting member of the board.
With this in mind, it is helpful to have a policy for removing ineffective board members. Funding sources know that not everyone chosen to serve on the board will be up to the job, despite all the scrutiny to ensure otherwise. Conflicts of interest and unethical behavior will occur. In response, you should include a clause in your bylaws stating that Board members who fail to fulfill their responsibilities or who habitually exceed their authority may be subject to removal by a two-thirds majority vote of the Board.
To help you get started, we would like to provide the following sample from the 2016 Church and Nonprofit Tax & Financial Guide For 2015 Tax Returns by Dan Busby, Michael Martin and John Van Drunen:
Sample Conflict of Interest Policy
All directors, trustees, officers, agents and key employees of this organization shall disclose all real or apparent conflicts of interest that they discover or that have been brought to their attention in connection with this organization’s activities. “Disclosure” shall mean providing properly, to the appropriate person, a written description of the facts comprising the real or apparent conflicts of interest. An annual disclosure statement shall be circulated to trustees, officers, and certain identified agents and key employees to assist them in considering such disclosures, but disclosure is appropriate and required whenever conflicts of interest may occur. The written notices of disclosure shall be filed with the board chair or such other person designated to receive such notifications. At the meeting of the governing body, all disclosures of real or apparent conflicts of interest shall be noted for the record minutes.
An individual trustee, officer, agent, or employee who believes that he or she or an immediate member of his or her immediate family might have a real or apparent conflict of interest, in addition to filing a notice of disclosure, must abstain from:
- participating in discussions or deliberations with respect to the subject of the conflict (other than to present factual information or to answer a question),
- using his or her personal influence to affect deliberations,
- making motions,
- executing agreements, or
- taking similar actions on behalf of the organization where the conflict of interest might pertain by law, agreement, or otherwise.
A person with a real or apparent conflict of interest will be excused from all discussions or deliberations with respect to the subject of the conflict.
A member of the governing body or a committee thereof, who, having disclosed a conflict of interest, nevertheless shall be counted in determining the existence of a quorum at any meeting in which the subject of the conflict is discussed. The minutes of the meeting shall reflect the individual’s disclosure, the vote thereon, and the individual’s abstention from participation and voting.
The board chair shall ensure that all directors, trustees, officers, agents, employees, and independent contractors of the organization are made aware of the organization’s policy with respect to conflicts of interest.