A Conflict of Interest Policy serves as an ethical roadmap for a nonprofit, ensuring that those in positions of power do not use their influence for personal or financial gain. Its primary purpose is to protect the organization’s integrity and tax-exempt status.
Why It Is Essential
- Protects Public Trust: It demonstrates to donors and the community that the mission always comes before the personal interests of board members or staff.
- Ensures Legal Compliance: It helps the organization avoid "excess benefit transactions," which can result in heavy IRS fines or the loss of 501(c)(3) status.
- Standardizes Decisions: It provides a clear, objective process for handling situations where a board member has a connection to a vendor or business deal, allowing the organization to proceed safely if the deal is truly in the nonprofit's best interest.
IRS Accountability: On the annual Form 990, the IRS specifically asks if the organization has this policy and how it is monitored.
Clan Campbell Society (North America) Conflict of Interest Policy
Article I: Purpose
This policy protects the organization's interests in transactions that could benefit an officer's or director's private interest or lead to an excess benefit transaction.
Article II: Definitions
An Interested Person is a director, principal officer, or committee member with governing board-delegated powers who has a direct or indirect financial interest. A Financial Interest exists if a person has an ownership or investment interest in an entity the organization transacts with, or a compensation arrangement with the organization or an entity it is negotiating with.
Article III: Procedures
Interested persons must disclose potential conflicts. To determine if a conflict exists, the interested person leaves the meeting. Procedures for addressing conflicts may include the board appointing a disinterested person or committee to investigate alternatives and determining if the transaction is in the organization's best interest and is fair and reasonable by a majority vote of disinterested directors.
Article IV: Records of Proceedings
Minutes must record the names of those disclosing financial interests, the nature of the interest, the board's conflict determination, and any votes taken.
Article V: Compensation
Voting board members compensated by the organization cannot vote on matters related to their compensation.
Article VI: Annual Statements
Directors, officers, and committee members must annually sign a statement confirming receipt, reading, and agreement to comply with the policy.