Conflict of Interest Avoidance, Disclosure, & Documentation

When creating or managing a nonprofit organization, it is vital that you avoid any conflict of interest. When these matters do arise or have to be dealt with, Perliski Law Group is ready to step in and provide the legal counsel needed during this time. A conflict of interest occurs when an officer or director of a nonprofit personally profits or has personal interest in a transaction taking place. 

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If this is the case, the transaction will be "tainted", unless either full disclosure was made and authorization or ratification is obtained or, the transaction appears fair to the organization. Disclosure and approval can be gained from the board of directors or members of the nonprofit, depending on the structure.

An example of a conflict of interest would be if an individual served as a director for more than one nonprofit organization and both organizations engaged in a transaction. Since a director has indirect interest in a transaction if they have material or financial interest in the other party involved.

Importance of Conflict of Interest Policies

A written conflict of interest policy is a cornerstone of effective nonprofit governance. It provides clear guidelines for identifying, disclosing, and addressing potential conflicts, ensuring the organization operates with integrity and transparency. Such a policy serves several critical purposes:

• Maintains Transparency: By requiring full disclosure of potential conflicts, the policy reassures stakeholders, including donors, members, and the public, that decisions are made objectively and in the best interest of the nonprofit.
• Protects Reputation: Nonprofits rely on public trust to secure funding and support. A well-drafted conflict of interest policy demonstrates a commitment to ethical conduct, safeguarding the organization’s reputation against allegations of favoritism or self-dealing.
• Ensures Ethical Decision-Making: A clear policy helps board members, officers, and staff navigate complex situations, reducing the likelihood of biased decisions that could harm the organization.
• Prevents Legal and Financial Risks: Addressing conflicts proactively minimizes the risk of disputes, regulatory scrutiny, or lawsuits stemming from perceived or actual conflicts.
• Facilitates Accountability: The policy creates a documented process for managing conflicts, which can be reviewed and audited to ensure ongoing compliance with nonprofit standards.