Is Your Nonprofit Conflict-Free for 2019?

As nonprofits ring in the new year, now is a perfect time for officers, directors, and staff to review your organization’s conflict of interest policy and annual conflict of interest disclosure forms.

Nonprofits are prohibited from engaging in transactions involving an officer, director, or key employee unless the transaction is in the best interests of the nonprofit; furthermore, transactions involving these individuals must be approved by a majority of the directors who have no financial stake in the transaction.

The IRS encourages all nonprofit organizations to adopt a conflict of interest policy to help navigate conflict-prone transactions and arrangements.  IRS 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 well-tailored to your needs.  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, this process provides an opportunity to train new board members or other personnel who find themselves within the scope of the policy for the first time.

The new year 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.  While these disclosures can—and should—be made on a rolling basis as they arise, it is a best practice to formally collect conflicts-related information from covered individuals on a regular, at-least-annual basis.

Please check out this legal alert 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.