Welcome back to the document scavenger hunt! Today we are focusing on a Conflict of Interest (COI) policy. It’s a biggie. Do you have one? Great! Do you fill out a new one annually? Awesome. If you don’t have a policy, or don’t fill one out annually, you should. Following is more information on what a Conflict of Interest policy is, why you need one and some resources for further reading.

We dived into COIs a little bit back in the duties section. A COI sits firmly under the Duty of Loyalty.

Many organizations don’t spend a lot of time on conflicts of interest but they should. Board members are often very busy people, leaders in their community, active in business, and all around social butterflies. This means that you have a lot of connections to people – a strength! – but those connections can also carry with them real or perceived conflicts of interest. Given your many connections a conflict of interest may not even be on your radar, that is why it is important to spend some time every year discussing what conflicts of interest are and updating your COI form.

The easiest interpretation of COI is that of personal gain, meaning the board member receives some kind of financial or personal gain from the decision. Does the board hire you or your company to do work for them? These are the clearest examples of COI and, often, the only disclosures people make, but conflict of interest can go a lot deeper than just financial gain.

Please note: Conflicts of Interest must be managed as per regulations from both State and the IRS. Not doing so can lead to penalties for both the individual and the organization.

More reading:

• https://www.irs.gov/charities-non-profits/charitable-organizations/intermediate-sanctions 
• https://www.irs.gov/charities-non-profits/charitable-organizations/intermediate-sanctions-excess-benefit-transactions
• https://www.irs.gov/charities-non-profits/charitable-organizations/inurement-private-benefit-charitable-organizations 

Here are a few examples of conflict of interest:

• An organization needed to hire an architect to do work on their building. The building committee met with and decided upon one candidate (ABC Design). The building committee membership included Tom. Tom is best friends with the principal owner of ABC Design. Tom was involved in the interview process and was the board member who made the motion at the monthly board meeting to hire ABC Design to do the appointed work.
  • Do you see the conflicts? In the moment, the organization, building committee, board or Tom did not. The conflict is that Tom is best friends with ABC Design’s owner. They do amazing work and that work won them the job but Tom should not have been involved in the interview process and he should not have been part of the vote or discussion when the motion was made to hire ABC.
• A farmers market conducted site visits to verify that their farmers were producers meaning the farmers grew the food that they sold at the market. To do these site visits, the market brought on two volunteers, trained them on proper procedure and then scheduled the visits. One of the volunteers had a running argument with a particular farmer, a farmer who was scheduled for a site verification. The farmer refused to allow the volunteer onto his farm.
  • Here, the COI is an actual conflict. If the volunteer inspectors found something wrong with the farmer’s operation and penalized him for that issue, the perception of conflict is there – the volunteer noted the penalized problem only because he did not like the farmer. Therefore perception of conflict is an important component of COI disclosures.
• Can you think of other real or perceived conflicts?

The best way to address conflicts of interest is to create a “culture of candor,” allowing board members to discuss freely their real or perceived conflicts and be open and honest with questions they may have. This approach works well when you dedicate time annually to the discussion and evaluation of conflicts of interest.

Procedures for COI

The procedures for how your organization deals with COI can vary, at minimum however, your should have the following points included in your COI procedure:

• All COI (real or perceived) must be noted in your board’s meeting minutes when COI’s arise.
• The meeting minutes need to name the conflicted party and disclose the nature of the conflict (as per your COI forms).
• Meeting minutes must state whether the conflicted party was present in the room during discussion of the motion or whether they removed themselves from the room.
• Minutes also need to state that the conflicted party abstained from the motion in which they have a conflict.

More reading:

• https://www.councilofnonprofits.org/tools-resources/conflicts-of-interest
• https://www.boardeffect.com/blog/conflict-of-interest-policy-for-nonprofit-boards/ 
• https://www.nigp.org/docs/default-source/docs/chapter/resourceguide/ConflictofInterest.pdf  

Would you like to learn more? We have a webinar coming up on Tuesday, April 21st. Sign up for the webinar here.