Conflicts of Interest

Each year your organization fills out a Form 990. Perhaps for a few years you were haunted by an inability to check the box verifying whether your organization has a written conflict of interest policy, if annual disclosure is required, and if the organization regularly monitors and enforces compliance with the policy. That blank box nagged you into reluctant compliance and you pulled a generic conflict of interest policy down off of the internet. Wise move?

Are Conflict of Interest Policies required of public charities? In fact, they are not. The IRS asks you, annually, in order to prompt you to place safeguards against common violations of law, including the prohibition on inurement/private benefit. Your organization and its board are required to faithfully handle donated funds and to avoid any situations in which donated funds are somehow enriching disqualified individuals associated with your charity beyond reasonable compensation for charity-related work. It is entirely possible to avoid improper dealings with disqualified persons without having a Conflict of Interest Policy in place.

Should your organization have a Conflict of Interest Policy? Absolutely. Despite the fact that it is not a technical requirement, it is best practice to have a customized Conflict of Interest Policy. This is one of the most important policies in your bank and deserves primary attention. Not only does it establish guardrails against the IRS’ prohibitions on inurement/private benefit, but this policy is a powerful peacekeeper for a board of directors.

Is it OK to pull a generic one off of the internet? Possibly. First, remember the old adage that it is better to have no policy than to have a policy that you do not, yourself, follow. Second, it is important to note that the policies you might find on the internet may have been written for a public charity of a substantially different size, mission, culture, etc.

Idaho’s nonprofit community tends to be much more collaborative than many others. This is meaningful when it comes to the application of a Conflict of Interest Policy. Many internet-derived policies mandate an absolute prohibition on dealings amongst disqualified individuals. The collaborative community in Idaho, however, may be conducive for such dealings if undertaken with the proper care.

Consider, for example, a board member of a local charitable foodbank that also is a senior executive with a large potato manufacturer and is individually a board member at a charity that builds housing for an indigent population. Striking a deal for low-cost surplus potatoes or reduced-cost rent in the excess warehouse space of the housing charity may technically be a conflicted interest transaction. The internet policy may, unyieldingly, restrict this board member from bringing her resources to benefit the charitable foodbank. A thoughtful and custom policy, however, may clarify the rules in which such a transaction may take place without violating the law and to the extraordinary benefit of the community.

If your organization would benefit from a review of your existing policies, or the creation of a custom policy designed to fit and benefit your unique organization, don’t hesitate to reach out to us at Idaho Nonprofit Law.