Conflict of Interest Policy for Nonprofits: Template and Guide

Every nonprofit needs a conflict of interest policy. The IRS asks about it on Form 990. Funders check for it in grant applications. Auditors verify it during reviews. And most importantly, it protects your organization from decisions that benefit insiders at the expense of the mission.

After more than 30 years of advising nonprofits on governance, I can tell you that most organizations have a conflict of interest policy. Far fewer actually use it. This guide gives you both the template and the practical understanding to make it work.

What Is a Conflict of Interest?

A conflict of interest exists when a board member, officer, or key employee has a personal or financial interest that could influence -- or appear to influence -- their judgment on an organizational decision.

Real-World Examples

Financial conflicts:

• A board member's company bids on a contract with the nonprofit
• A board member's spouse works for a vendor the nonprofit uses
• A board member has a financial interest in a property the nonprofit is considering purchasing
• A staff member's relative applies for a grant the organization administers

Relational conflicts:

• A board member advocates for hiring a close friend as executive director
• A committee member evaluates a grant application from their former employer
• An executive director recommends a consulting firm owned by a family member

Dual loyalty conflicts:

• A board member simultaneously serves on the board of a competing nonprofit
• A board member's employer has interests that conflict with the nonprofit's advocacy positions
• A staff member volunteers for an organization competing for the same funding

The key insight: Conflicts are not inherently wrong. Having a conflict does not make someone unethical. Failing to disclose a conflict does.

Conflict of Interest Policy Template

Article I: Purpose

The purpose of this conflict of interest policy is to protect [Organization Name]'s interest when it is contemplating entering into a transaction or arrangement that might benefit the private interest of an officer, director, or key employee of the organization.

Article II: Definitions

Interested Person: Any director, officer, or key employee who has a direct or indirect financial interest, as defined below.

Financial Interest: A person has a financial interest if the person has, directly or indirectly:

• An ownership or investment interest in any entity with which the organization has a transaction or arrangement
• A compensation arrangement with the organization or with any entity or individual with which the organization has a transaction or arrangement
• A potential ownership or investment interest in, or compensation arrangement with, any entity or individual with which the organization is negotiating a transaction or arrangement

Article III: Procedures

Duty to Disclose: Any interested person must disclose the existence of their financial interest and all material facts to the board or relevant committee.

Determining Whether a Conflict Exists: After disclosure, the interested person must leave the room. The remaining board members discuss and vote on whether a conflict of interest exists.

Procedures for Addressing the Conflict:

• The interested person may present information about the transaction but must leave the room for discussion and vote
• The board chair appoints a disinterested person or committee to investigate alternatives
• After exercising due diligence, the board determines whether the organization can obtain a more advantageous transaction from a non-interested party
• If a more advantageous arrangement is not available, the board determines by majority vote whether the transaction is in the organization's best interest and is fair and reasonable

Violations: If the board has reasonable cause to believe a person has failed to disclose a conflict, it will inform the person and allow them to explain. If the board determines a failure to disclose occurred, it will take appropriate disciplinary action.

Article IV: Records of Proceedings

The minutes of the board meeting must contain:

• The names of persons who disclosed a financial interest
• The nature of the financial interest
• Any action taken to determine whether a conflict existed
• The board's decision about the conflict
• The names of persons present for discussions and votes
• The content of the discussion and votes

Article V: Annual Statements

Each director, officer, and key employee must annually sign a statement affirming they:

• Have received a copy of the conflict of interest policy
• Have read and understand the policy
• Have agreed to comply with the policy
• Understand the organization is tax-exempt and must engage primarily in activities that accomplish its exempt purposes

Annual Disclosure Form Template

[Organization Name] Annual Conflict of Interest Disclosure Statement

Name: ___________________________________ Position: ________________________________ Date: ____________________________________

1. Do you or any member of your immediate family have a financial interest (ownership, investment, or compensation) in any entity that does business with or seeks to do business with [Organization Name]?

[ ] No [ ] Yes -- If yes, please describe: _________________________________

2. Do you or any member of your immediate family serve as a director, officer, employee, or consultant of any entity that does business with or seeks to do business with [Organization Name]?

[ ] No [ ] Yes -- If yes, please describe: _________________________________

3. Do you or any member of your immediate family have any other relationships or interests that could create a conflict with your duties to [Organization Name]?

[ ] No [ ] Yes -- If yes, please describe: _________________________________

4. Are you aware of any other relationships, transactions, or situations that could create an actual or perceived conflict of interest?

[ ] No [ ] Yes -- If yes, please describe: _________________________________

I have received, read, and understand the conflict of interest policy of [Organization Name]. I agree to comply with this policy. I understand that [Organization Name] is a tax-exempt organization and that to maintain its federal tax exemption it must engage primarily in activities which accomplish one or more of its tax-exempt purposes.

Signature: ___________________________________ Date: _______________________________________

How the Board Should Handle Conflicts

When a Conflict Is Disclosed

Thank the person for disclosing. Creating a culture where disclosure is expected and appreciated is essential.

Ask the interested person to share relevant information about the transaction or arrangement.

Ask the interested person to leave the room for discussion and vote.

Discuss the merits of the transaction without the interested person present.

Determine if alternatives exist that would achieve the same result without the conflict.

Vote. The interested person does not vote. Record the outcome and reasoning in the minutes.

Inform the interested person of the decision.

When a Conflict Is NOT Disclosed (But Suspected)

• Raise the concern privately with the individual first.
• If they deny a conflict that clearly exists, bring it to the board chair.
• The board chair convenes a discussion (the suspected individual may present their perspective).
• The board determines whether a conflict exists and takes appropriate action.

For broader governance practices, see our nonprofit governance best practices guide and board roles and responsibilities.

IRS Requirements

The IRS takes conflict of interest seriously:

Form 990, Part VI, Section B, Line 12: Asks whether the organization has a written conflict of interest policy. Answering "No" is a governance red flag that can trigger scrutiny.

Form 990, Schedule L: Requires disclosure of certain transactions with interested persons, including loans, grants, business transactions, and compensation arrangements with officers, directors, and key employees.

Best practice: Having the policy is the minimum. The IRS expects that you also enforce it -- annual disclosures, documented discussions in meeting minutes, and appropriate recusal when conflicts arise.

Tangible Takeaway

Adopt this policy at your next board meeting, distribute copies to every board member and key employee, and collect signed annual disclosure forms within 30 days. Then build conflict disclosure into the start of every board meeting: "Before we begin, does anyone have a conflict of interest related to any item on today's agenda?" This simple question normalizes disclosure and prevents problems before they escalate.

Frequently Asked Questions

Is a conflict of interest policy legally required? Not by federal law, but the IRS expects it and asks about it on Form 990. Many states require it for certain nonprofit types. Practically, every nonprofit should have one.

What happens if someone does not disclose a conflict? Depending on severity: private conversation, formal board action, removal from the board, or legal action. The policy should specify consequences.

Can a board member vote on their own compensation? No. This is one of the most common conflicts. The interested board member must recuse themselves from all discussion and voting on their own compensation.

How often should annual disclosures be collected? Once per year, typically at the start of the fiscal year or at the annual meeting. New members should complete the form when they join the board.

What if every board member has a conflict on a particular issue? This is rare but possible. Consult legal counsel. Options include engaging an independent party to evaluate the decision or ensuring documentation is extraordinarily thorough.

Does this apply to volunteers? The IRS policy applies to directors, officers, and key employees. Extending conflict of interest protections to major volunteers and committee members is a best practice.

About the Author

Drew Giddings is the Founder and Principal Consultant of Giddings Consulting Group, with more than 30 years of experience in nonprofit governance, board development, and organizational development.

Contact Giddings Consulting Group to discuss governance policies, board development, or organizational planning for your nonprofit.