The 501 S(c)ene

The latest view on not-for-profit accounting issues

The Importance of A Conflict of Interest Policy

Conflict of Interest policies for board members are a much needed piece for any not-for-profit organization.  A conflict of interest policy will help board members recognize when their activities are related party transactions and should have different treatment.  These treatments include processes for decision making and disclosures to the financial statements.  When a board member discloses they have a conflict of interest, they should not be a part of the voting process or decision making for that transaction.  An important tip to remember is documentation in the minutes about the treatment for the decision made on the related party transaction.  Be sure to document in the minutes that the board member left the room for the discussion and was not a part of the voting process.  If there is a related party transaction made, then the details of the transaction must be disclosed in the financial statements.  The footnote should describe the conflict of interest and the dollar amount of the transaction. 

Just having a conflict of interest policy in place may not be enough to ensure all related party transactions are caught.   Be sure to continually remind your board members about what constitutes a conflict of interest.  They may have life changes, such as new employment or retirement that will affect any current conflict of interest they have with the organization currently.  Having a conflict of interest policy and recognizing when conflicts occur are also important to the not-for-profit organization because you are required to list any related party transactions on the 990 return.  The 990 form will also ask if the organization has a conflict of interest policy in place.  Even though it is not required to have a policy in place, this is an area users will look on your 990 return when researching your organization.  If you have questions or would like to discuss more on conflict of interest policies, please do not hesitate to contact any of our non-profit professionals.

Michelle Housman