Three Policies That Will Protect Your Mission

We're going to start with the conflict of interest policy.

So why is this policy essential? A conflict of interest policy protects the nonprofits from self-dealing, private benefit, and even the appearance of impropriety.

Board members and officers have a legal duty of loyalty.

meaning they must put the organization's interest ahead of their own.

When personal and business interests conflict with the nonprofit's decision-making process, the risk is not just ethical, it's legal and reputational.

The IRS specifically asks in the IRS Form 990 whether organizations have a written conflict of interest policy.

This makes sure conflicts are both disclosed and managed, not ignored.

So why should the boards care? Donors, regulators, auditors, and journalists all look at this policy first when something goes wrong.

Even unintentional conflicts can undermine trust if not disclosed and documented.

Many state attorney generals rely on this policy when investigating nonprofits.

In New York, this is not just good business practices, but it's the law.

So what should be included in your organization's conflict of interest policy? It should clearly define what is a conflict of interest.

It should define what a direct or indirect financial interest in a business includes.

It should include disclosures covering not only the board members themselves, but family members and close relatives.

Also, if a board member has influence, not just ownership of a related party, that should be included as well.

As best practices, I would also include some frequently asked questions, a clear explanation of how to report a potential conflict when it arises, and the ramifications of not reporting a conflict to the board.

Let's go through a common scenario.

Let's say the organization needs to do some needed repairs to their office building, and one of the board members is a construction contractor, and he or she wants to bid on this work.

this would be deemed a conflict of interest.

Similarly, if the construction company was owned by a close friend or a relative of that board member or a key employee of the organization, this would also be deemed to be a conflict of interest.

This is why disclosure is so important.

In this case, the conflicted board member needs to recuse him or herself from the process and allow the rest of the board to review the bids from the applicants to determine the best contractor for the job.

Another detriment of doing business with the board member is since he or she understands the industry, it would be better for the organization if they were able to review the bids impartially and ask knowledgeable questions of the other bidders.

Having a clear policy for bidding conflicts is best practice.

As an auditor, a few questions are frequently asked by board members when they're filling out their conflict of interest forms is how do I know who the organization is doing business with? Or if my spouse works for Staples, do I need to disclose this? The answers can vary depending on circumstances.