Conflict of Interest Policy

A conflict of interest policy is a formal, written document that defines what constitutes a conflict of interest, requires disclosure of potential conflicts, and establishes procedures for managing them. It's one of the most fundamental governance documents a nonprofit can have — and the IRS specifically asks about it on Form 990.

The policy typically requires all board members, officers, and key employees to complete an annual disclosure statement listing their outside business interests, family relationships, and any connections that could create a conflict. When a potential conflict arises during board deliberations — say, a board member's company is bidding on a contract, or a board member's relative is being considered for a staff position — the policy prescribes a process: disclose the conflict, recuse from discussion and voting, document everything in the minutes.

A good conflict of interest policy covers: who is subject to the policy (board, officers, key staff, sometimes volunteers); what constitutes a conflict (financial interest, family relationships, outside positions); the disclosure and recusal process; how conflicts are documented; annual disclosure requirements; and consequences for violating the policy. The policy should apply to the appearance of conflict, not just actual conflicts — because in the nonprofit world, perception matters as much as reality.

The IRS asks directly on Form 990: "Does the organization have a written conflict of interest policy?" Answering "no" is a red flag for the IRS, funders, and donors. But having a policy you don't actually follow is arguably worse — it creates the appearance of governance without the substance.

Conflicts of interest are one of the most common sources of nonprofit scandal and legal liability. Board members steering contracts to their businesses, hiring family members, or using organizational resources for personal benefit erode public trust and can trigger investigations by the state attorney general. A strong conflict of interest policy prevents these situations from arising — or catches them early when they do.