Insight

Conflict-of-interest policies are too important for nonprofits to neglect

Does your not-for-profit organization have a conflict-of-interest policy in place? Do your board members, trustees and key employees understand how the policy affects them? If you answer “no” to either (or both) of these questions, you have some work to do.

A duty

Nonprofit board officers, directors, trustees and key employees all must avoid conflicts of interest because it’s their duty to do so. Any direct or indirect financial interest in a transaction or arrangement that might benefit one of these individuals personally could result in bad publicity, the loss of donor and public support, and even the revocation of your organization’s tax-exempt status.

This is why nonprofits are required to have a written conflict-of-interest policy. To stress the importance of this requirement, the IRS asks tax-exempt organizations to acknowledge the existence of a policy on their annual Form 990s.

Define and provide procedures

In general, conflict-of-interest policies should define all potential conflicts and provide procedures for avoiding or dealing with them. For example, to prevent a board member from steering a contract to his or her own company, you might mandate that all projects are to be put out for bid, with identical specifications, to multiple vendors.

It’s critical to outline the steps you’ll take if a possible conflict of interest arises. For instance, board members with potential conflicts might be asked to present facts to the rest of the board, and then remove themselves from any further discussion of the issue. The board should keep minutes of the meetings where the conflict is discussed. You should note the members present, as well as how they vote, and indicate the final decision reached.

Making it effective

As with any policy, conflict-of-interest policies are only effective if they’re properly communicated and understood. Require board officers, directors, trustees and key employees to annually pledge to disclose interests, relationships and financial holdings that could result in a conflict of interest. Also make sure they know that they’re obliged to speak up if issues arise that could pose a possible conflict.

For help crafting a thorough policy, contact us.

© 2020

Related Insights

Guaranteeing a loan to your corporation? There may be tax implications | business consulting and accounting services in harford county | Weyrich, Cronin & Sorra

Management Advisory Services & Business Consulting

Guaranteeing a loan to your corporation? There may be tax implications

Let’s say you decide to, or are asked to, guarantee a loan to your corporation. Before agreeing to act as a guarantor, endorser or indemnitor…
Divorcing business owners should pay attention to the tax consequences | business consulting services in cecil county md | Weyrich, Cronin & Sorra

Management Advisory Services & Business Consulting

Divorcing business owners should pay attention to the tax consequences

If you’re getting a divorce, you know the process is generally filled with stress. But if you’re a business owner, tax issues can complicate…
Receive more than $10,000 in cash at your business? Here’s what you must do | business consulting and accounting services in hunt valley md | Weyrich, Cronin & Sorra

Management Advisory Services & Business Consulting

Receive more than $10,000 in cash at your business? Here’s what you must do

Does your business receive large amounts of cash or cash equivalents? If so, you’re generally required to report these transactions to the…

Connect with us

Use the form below to send us an email. WCS responds directly to all inquiries and general questions within 24 hours of posting.

This contact form is deactivated because you refused to accept Google reCaptcha service which is necessary to validate any messages sent by the form.