The Essential Nonprofit Conflict of Interest Policy Template
Do You Need a Conflict of Interest Policy?
Nonprofit organizations are just that—mission-driven, not profit-driven. But good intentions alone aren’t enough to keep your organization out of trouble. That’s where nonprofit governance comes in. By implementing board governance best practices, like having a written conflict of interest policy, you can mitigate potential issues before they turn into problems. And there will be issues. Conflicts of interest are a part of life. To be perfectly clear, the conflicts are rarely a problem by themselves. They only become problems when there isn’t a transparent process for handling them.
If you’ve been around nonprofits for more than a day, you know that board members often do business with each other and sometimes with the nonprofit. This isn’t surprising, as relationships drive most business. Having a shared interest in a common cause strengthens those relationships, leading to trust and like I said, business relationships as well.
Those business relationships aren’t a bad thing, either. For example, a board member might provide the nonprofit a service at-cost because they see it as another way of supporting the organization. Assuming the service is of sufficient quality, that’s a win for the nonprofit, since it’s unlikely they could find someone else willing to work at-cost.
Conflict of Interest Examples
Most problems arise when contracts are given through an unclear process or worse, no-bid contracts are handed out. Remember, nonprofit leaders have a fiduciary duty to always place the nonprofit’s best interests first. When contracts are awarded without a transparent process, it becomes hard, or even impossible, to know if the contract really did go to the best option. On the other hand, when an organization has both a conflict of interest policy and just as importantly, a culture of compliance, it’s possible for an organization to show the process by which they decided to award a certain contract.
For example, I’m involved with an organization who has a strict policy of requiring multiple bids for any contract over a certain dollar amount. Board members are allowed to compete in the RFP process, however they must recuse themselves from having a role in the decisionmaking process. These rules are a part of the nonprofit governance policies through which the organization handles managing conflicts of interest, while ensuring everyone has the ability to compete for contracts.
This brings me to my next point; a conflict of interest policy alone isn’t enough. Remember, self-dealing is one of the easiest ways to lose your tax exempt status as a nonprofit. Instead, your organization must build a culture of compliance, starting at the top. Actions such as implementing board governance best practices like establishing a nonprofit governance committee, to ensuring your board knows and follows your written policies, are your organization’s best defense against self dealing.
To that end, a well-drafted policy is more than a piece of paperwork. It’s a safeguard for your mission, your reputation, and your tax-exempt status. The IRS specifically looks for nonprofits to have procedures that prevent private benefits from flowing to insiders like officers, directors, or trustees. And your donors, volunteers, and community supporters expect to see that your organization operates with integrity and transparency.
Think of your nonprofit’s Conflict of Interest Policy as both a shield and a compass. It shields your organization from legal or financial risk, and it points your people—board members, staff, and volunteers—toward decisions that place your mission first.
Purpose and Scope
The purpose of a Conflict of Interest Policy is simple: to set up a clear process for disclosing and handling actual or potential conflicts of interest. Conflicts of interest happen and when handled properly, aren’t an issue. The important thing is to have a written policy in place for mitigating these conflicts…before they arise. This ensures your nonprofit operates in line with its charitable purpose, not the personal interests of individuals involved.
The scope is broad on purpose. It applies not only to your board of directors, but also to officers, employees, volunteers, contractors, and anyone acting on behalf of your organization. Why? Because conflicts can arise at any level—from a board chair voting on a contract that benefits their company, to a volunteer steering business to a family friend.
By spelling out expectations up front, you protect the organization’s tax-exempt status, guard its reputation, and give everyone a fair process to follow when gray areas appear.
When gray areas appear is a key point, because they inevitably will appear. Sometimes they are legitimate conflicts of interest, other times the situation merely has the appearance of impropriety. In either case, referring to a clear conflict of interest policy allows your organization to be protected.
What Belongs in your Conflict of Interest Policy?
A good template should include:
- Definitions – Clear explanations of what a “conflict of interest” means in your context.
- Disclosure Procedures – How and when board members, staff, and volunteers must disclose a potential conflict.
- Review & Management – Steps the board or committee will take to review disclosures, including when individuals must recuse themselves from voting.
- Consequences – What happens if someone fails to disclose a conflict, from corrective action to removal if necessary.
- Annual Statements – A requirement that directors and key employees sign an acknowledgment each year, disclosing any potential conflicts.
The policy should also outline how the board maintains confidentiality and ensures fairness during the review process.
Why Nonprofit Governance Matters
Conflicts of interest don’t always come from bad intentions. Many times, they’re simply the result of tight-knit communities where people wear multiple hats. A board member may own a local business the nonprofit wants to hire. A staff member may be related to a vendor. These aren’t unusual scenarios, I’ve ran into similar situations at least a dozen times over the years. That said, without a policy in place, such situations can erode trust and potentially jeopardize your nonprofit’s standing with the IRS.
By adopting and following a Conflict of Interest Policy, your organization sends a clear message: we put our mission first. That commitment builds confidence with donors, regulators, and the communities you serve.
Get Your Free Template
To make this easy, we’ve created a Conflict of Interest Policy Template and Checklist that you can download and customize for your organization. It includes sample language, disclosure procedures, and annual acknowledgment forms, everything you need to get your board and staff on the same page. For more resources, check out our resources page!