All non-profit entities and charities have one goal in common – to help others. Whether it's to improve the quality of life for a specific community or raise funds for a school, assisting is the critical element.
Unlike businesses and corporations, private and financial gain isn't and shouldn't be the goal. However, people with executive positions in non-profit organizations are typically busy people. And, as such, they may sometimes overlook specific conflicts of interest they may have in their roles.
These conflicted roles needn't be nefarious, and you can easily manage them if they're talked about openly. Furthermore, disclose any potential conflicts of interest in an official document called a Conflict of Interest Policy.
Even if a director or someone in a position of authority at a non-profit organization doesn't have a specific conflict of interest, they should sign the policy regardless.
They can simply state that a conflict of interest doesn't exist. On the other hand, this type of policy allows people in power to be fair and open about any possible conflicts.
But it's also mandatory for the non-profit organization leaders to abide by Duty of Loyalty, which describes their obligation to act in the organization's best interest.
On top of that, as a tax-exempt entity, every non-profit organization is required to submit an IRS 990 Form. The form acknowledges that the organization's board of directors signed Conflicts of Interest Policies.
Depending on your state, you may also know a Conflicts of Interest Policy as:
Essentially, every non-profit entity that is considered tax-exempt is required to create Conflicts of Interest Policies.
There are many types of non-profit organizations such as unions, religious institutions, social welfare organizations, recreational clubs, teacher associations, veterans' organizations, and similar.
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A Conflicts of Interest Policy form isn't a complicated document. But it needs to contain important details regarding potential conflicts of interest by directors of the board.
You must have a clear purpose of the policy and clearly define what conflict of interest is within an organization. We can make this process easy for you.
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Before a director or an employee of a non-profit organization signs the policy, they should take the time to review it.
Often, the document requires them to choose from the list of potential conflicts, and other times they must enter specific information. Upon reading and reviewing, they should sign the policy before a board president or the secretary.
The Conflicts of Interest Policy doesn't require notarization, and you don't have to file with a government entity.
However, it should be noted in the organizations' meeting minutes and kept on file. Both the organization and the person signing the policy should have a copy of the form.
There are many ways a director can find themselves in a conflict of interest, but let’s look at a couple of examples: Imagine if you're a member of your child's school board and the child gets into a problem with a teacher.
Should that teacher’s dismissal ever be discussed at the board meeting, you would have a conflict of interest.
Another typical example is receiving gifts such as concert tickets, expensive dinners, or free hotel stays. While these might not necessarily influence you, there is no guarantee that they won’t.
You should disclose a conflict of interest during the first meeting of the board of directors. The board president should take it upon themselves to introduce the Conflicts of Interest Policy form and ask every member to fill it out and sign it. If you note any conflicts of interest, everyone can freely discuss them.
Yes, they can, and they often do. But even though there usually isn't any genuine concern for creating a conflict of interest, it should be noted.
If a person is already a member of the board in one non-profit entity, they should sign a Conflicts of Interest Policy where you state that fact.
Conflicts of interest that are not managed and disclosed in a policy can result in severe penalties.
These are called intermediate sanctions. And can be applied to those who have benefited from their actions and against the organization itself. Sometimes, the member of the board can be removed for some time or indefinitely.
One of the best ways to handle conflicts of interest in any organization is to obtain competitive bids, in writing, for all major purchases.
For example, one member of the board might own a restaurant. At the same time, the organization is preparing an event that requires catering services.
To avoid conflict of interest, the board member owning a restaurant can also suggest other catering services submit their proposals.
Finally, discussing the potential conflicts openly and recusing yourself when you find yourself in a battle are excellent practices as well.
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