A written conflict of interest policy should be put into place to ensure that voting board members are not influenced to act in any way other than in the best interests of the organization. Nonprofits can be closely monitored by the public to see if any transactions the organization enters into directly benefit a member of the board. It’s possible that one or multiple board members could vote the organization into an action that either benefits them or a family member personally.
An example of this is if a board member votes for the organization to enter into contract with their own business. This may benefit the board member and their business more than the organization as there may be cheaper vendors that better suit the needs of the organization. The board member may not even have personal gain on the brain but that doesn’t change the fact that a conflict of interest exists and the member is not completely unbiased.
When you donate funds to any nonprofit organization, you trust that your money will be used in the absolute best possible way to help the organization fulfill its mission. Donors don’t want to see their funds taken for granted and used for any other purpose outside the organization’s programs or support for the programs. This can be partly monitored by having each board member sign a conflict of interest policy annually to make sure the organization is not involved in any transaction or other organization that the governing board members are affiliated with. Board members should sign the conflict of interest policy when they are brought on the board as a new director as well as annually for each year they remain on the board as their own business ventures may change.
It should be noted too that the Form 990 requires organizations to disclose if they have a conflict of interest policy, if it is signed annually and how the policy is enforced (See Form 990, Part VI, Section B, line 12a, 12b, and 12c). The Form 990 does not require that an organization has a conflict of interest policy but it is requiring some transparency that can help donors decide where to send their contributions. We have a sample conflict of interest policy to help you get started in creating your own for your organization. It can be found here.