Conflict of Interest

Best Practices

Nonprofits should adopt a Conflict of Interest Policy that includes:

• Disclosure Requirements: Individuals must disclose potential conflicts before board votes or major decisions.
• Recusal Protocols: Affected individuals should abstain from discussion or voting on matters where a conflict exists.
• Annual Conflict Disclosure Forms: Require all board members and key staff to complete and update forms annually.
• Documentation: Meeting minutes should reflect how conflicts were disclosed and managed.

Potential Consequences

Repeated or unmanaged conflicts of interest can lead to:

• Loss of donor or funder confidence
• Penalties or investigations by the IRS or state attorney general
• Revocation of tax-exempt status in severe cases
• Reputational damage that affects partnerships and community support

Real World Examples

• A board member’s law firm is paid to represent the nonprofit, but the arrangement wasn’t disclosed or approved by the board.
• A nonprofit’s executive director approves a consulting contract for a relative without informing the board.