April 23@4 Series: Conflict of Interest

While, for the most part COI policy is not required as a matter of law, best-practices recommends the adoption of one.  Indeed, the IRS is pushing a COI policy as a condition of recogition of tax-exempt status.  Source: Nonprofit Governance: Law, Practices & Trends by Bruce Hopkins & Virginia Gross, 346.73064 H77N.

The 2009 IRS Form 990 includes significant changes in PartVI: Governance, Management, and Disclosure which covers Conflicts of Interest for compensation.  The revised 990 asks not only about whether the nonprofit has a written COI policy, but also about the process that a nonprofit uses to manage conflicts and how the nonprofit determines whether board members have a conflict of interest. Source: http://www.councilofnonprofits.org/?q=conflict-of-interest . The IRS outlines the Purpose of a Conflict of Interest Policy as it is stated in the application for Tax-exempt status, Form 1023.

The program began with definition of the four types of Conflicts of Interest:

  • Potential or Actual, when an employee or board member is in a position to influence a decision that may result in a personal gain for themselves, or for a relative, as a result of the organization’s business dealings.
  • Self-dealing, when a board member uses inside information from the organization for his/her personal benefit or to the detriment of the organiztion. Inside information is information which has not been made public.
  • Competitive, when a board member has a dual interest in a proposed transaction.

Source: Governing Boards: Their Nature and Nuture by Cyril O. Houle, 658.42 H81G.

might be encountered; how to avoid them; what should be in a written policy and how to enforce it.

This post summarizes the topic and provides examples of the COI agreement every board member should sign annually disclosing potential areas of conflict.

A primary resource was the book: Managing Conflicts of Interest: A Primer for Nonprofit Boards by Daniel L. Kurtz and Sarah E. Paul, published by BoardSource.

The conclusion? Every nonprofit organization should have a Conflict of Interest Policy.

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