Even the slightest implication of a conflict of interest can give a public charity a black eye and endanger its reputation. Some conflicts, however, may be unavoidable given the nature of the relationship between organizations and their officers, directors, and trustees.
According to the IRS, “A conflict of interest occurs when an individual’s obligation to further the organization’s charitable purposes is at odds with their own financial interests.” Conflicts frequently exist when compensation and benefit packages are being discussed for officers, directors, or trustees. Conflict can also arise when a contract between the organization and a business owned by an officer, director, or trustee is up for a vote.
Form 990 Spells It Out
The questions on Form 990, Part VI, Section B outline how the IRS expects tax-exempt organizations to handle the conflict issue. Organizations should:
o Have a written conflict of interest policy
o Annually require officers, directors, trustees, and key employees to disclose interests that may result in conflicts of interest
o Monitor and enforce policy compliance consistently and on a regular basis.
If and when a conflict arises, you should have a process in place that protects your organization from charges of impropriety by ensuring that the individual(s) involved in the conflict are not involved in the resolution of the matter.
Full disclosure: Board and staff members should be encouraged to disclose an interest they may have in any matter or transaction that could potentially be viewed as affecting objectivity. This applies to all individuals with the ability to influence decisions, including board members, staff members, and parties related to them.
Recusal: Board members who have a material conflict should recuse themselves from all discussions and votes.
Documentation: The disclosure of any conflicts and the actions taken in response (e.g., recusal, abstention, etc.) should be fully noted in the minutes.