An Easy Resolution: Review Your Conflict of Interest Policy and Annual Board Disclosure Forms

The new year is a perfect time for your board of directors to review its conflict of interest policy and to complete its annual conflict of interest disclosure forms.

Both federal and local law provide that a nonprofit cannot engage in a transaction with an officer, director, or key employees unless the transaction is in the best interests of the nonprofit, and until it has been approved by a majority of the directors who have no financial stake in the transaction.

Consistent with these rules, the IRS encourages all nonprofit organizations to adopt a conflict of interest policy to prevent the organization from entering such transactions or arrangements.  Form 990 also asks whether the nonprofit “regularly and consistently” monitors and enforces compliance with its conflict of interest policy, and whether officers, directors, and key employees are required to disclose potential conflicts on an annual basis.

Periodic review of your organization’s conflict of interest policy will help to ensure that it is robust and effective, and that it is up-to-date with respect to any growth or changes in your organization.  The board can also use this opportunity to assess its compliance with the policy and to make any necessary improvements, steps which can then be reported on Form 990.  Finally, now is also a good time for directors, officers, and key employees to identify new private interests that may give rise to conflicts by completing their annual conflict of interest disclosure forms.

Please check these resources for more information on conflict of interest policies, as well as a sample policy and disclosure form:

• Tax-Exempt Organizations Alert, Conflict of Interest Policies: Disclosure, Monitoring, and Enforcement
• Sample Conflict-of-Interest Policy
• Sample Conflict-of-Interest Disclosure Form