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Nonprofit Conflict of Interest Policy Template

Nonprofit Governance and Board Compliance Resource

Streamline nonprofit governance with our conflict of interest policy template and checklist. For 501(c)(3) and other tax-exempt organizations, boards, and attorneys. The IRS expects nonprofits to have a conflict of interest policy; many state laws and best practices require one. Ensure your policy defines covered persons and financial interests, requires disclosure, establishes recusal and disinterested decision-making, provides for annual affirmations and documentation, and addresses violations so you protect the organization and meet governance standards.

Nonprofit Conflict of Interest Policy Template form template preview

Key Benefits

Meet IRS and state expectations for conflict-of-interest governance
Define who is covered and what constitutes a conflict
Establish disclosure, recusal, and disinterested review procedures
Document compliance for Form 990 and audits
Protect the organization and directors from self-dealing risk
Professional nonprofit governance workflow

Common Use Cases

501(c)(3) organizations adopting or updating a conflict policyBoards implementing IRS-recommended governance practicesAttorneys drafting policies for new or existing nonprofitsChurches, charities, and educational organizationsOrganizations preparing for Form 1023 or auditBoard committees reviewing and enforcing conflict procedures

Frequently Asked Questions

Does the IRS require a conflict of interest policy?
The IRS does not legally require a written conflict of interest policy for 501(c)(3) organizations, but it recommends one and asks on Form 990 whether the organization has such a policy. Grantmakers and state charity regulators often expect or require one. Having a clear, adopted policy supports good governance and helps demonstrate that the organization manages conflicts properly.
Who should be covered by the policy?
Typically the policy covers directors, officers, and key employees—and often committee members and others in a position to influence decisions. Some policies also cover family members and related entities. Define 'covered person' or 'interested person' clearly and require annual disclosure from everyone in scope.
What is a financial interest for conflict purposes?
A financial interest usually means any ownership, compensation, or other arrangement with a person or entity that is party to a transaction or decision. Policies often set a threshold (e.g. de minimis) below which disclosure is not required. Define financial interest and include examples so covered persons know when to disclose.
How should the board handle a disclosed conflict?
The interested person should disclose the conflict, recuse from discussion and vote, and often leave the room. Only disinterested directors should discuss and vote. The policy should require that the transaction be fair and in the organization's best interest and that the decision and recusal be documented in meeting minutes.

Checklist

Policy Framework

State purpose and scope: protect the organization; apply to directors, officers, key employees (and others as defined)
Required

Clearly state that the policy is to protect the organization's interest when it is contemplating a transaction or arrangement that might benefit a covered person. List who is covered (board, officers, key employees, committee members, family).

Periodic review and amendment of the policy (e.g. annual board review)

Board reviews the policy periodically and amends as needed. Document adoption and any amendments in board minutes.

Definitions

Define key terms: interested person, financial interest, compensation, family member, related entity
Required

Interested person = covered person with a financial interest. Financial interest = ownership, compensation, or other arrangement; often with a de minimis exception. Define family (spouse, children, siblings, etc.) and related entities for clarity.

Disclosure

Require disclosure of financial interests (before board/committee action; annual disclosure form)
Required

Covered persons must disclose any financial interest in a transaction or arrangement before the board or committee discusses or votes. Require an annual disclosure statement listing known interests; update when circumstances change.

Procedures

Procedure for determining whether a conflict exists (disclosure, board/committee review)
Required

After disclosure, the board or committee (excluding the interested person) determines whether a conflict exists. Document the determination. If no conflict, the person may participate; if conflict, recusal procedures apply.

Recusal: interested person may not participate in discussion or vote; may be asked to leave
Required

When a conflict exists, the interested person must not participate in discussion or vote. Policy often requires the person to leave the room. Only disinterested directors may deliberate and vote.

Require that the transaction be approved by a majority of disinterested directors and be in the organization's best interest
Required

The board or committee may approve the transaction only if a majority of disinterested directors determine it is in the organization's best interest and fair. Some policies require competitive bids or documentation of fairness.

Documentation

Document disclosure, recusal, and approval in meeting minutes
Required

Minutes should record the disclosure, the decision that a conflict existed, the recusal, and the vote of disinterested directors. Keeps a record for IRS, auditors, and future boards.

Annual conflict of interest statements (signed by each covered person)
Required

Each covered person signs an annual statement disclosing known financial interests or certifying none. Kept on file. Supports Form 990 and governance reviews.

Enforcement

Address violations: reporting, investigation, and corrective action

Policy may state that violations should be reported to the board chair or a designated person, investigated, and remedied. Repeat or serious violations may result in removal or other action per bylaws.