When an arrangement is personally benefiting one of your officers, board members or employees, you are in violation of IRS guidelines regarding conflicts of interest in nonprofits, and you could lose your tax-exempt status as well as your good reputation.
More specific conflict of interest examples include when a board member gives a nonprofit a special rate for a good or service just because he or she is on the board; or when a board member is in some way already benefiting or paying for a nonprofit’s services, yet he or she still remains on the board.
The checklist below serves as a good starting point for avoiding conflicts of interest. Simply ask yourself these nine questions:
- Do you have a conflict of interest policy in place that specifies what constitutes a conflict and lists exceptions?
- Do you 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?
- Do they understand that they must speak up if issues arise that could pose a possible conflict?
- Do you provide training in conflicts of interest?
- Do you have procedures in place that outline the steps you’ll take when a possible conflict of interest arises?
- Are individuals with possible conflicts asked to present only the facts, and then remove themselves from any discussion of the issue?
- Do you keep minutes of the meetings where the conflict of interest is discussed, noting those members present and voting, and indicating the final decision reached?
- Do you put projects out for bid — with identical specifications — to multiple vendors?
- Do you supply a written contract to each vendor that details the service the company will provide, specific deliverables, cost estimates and a time frame for delivery?
If you answered “no” to any of these questions, it may be time to create or refine your conflict of interest policy.