What is the purpose of the conflict-of-interest policy?
Charitable organizations are frequently subject to intense public scrutiny, especially where they appear to have inappropriately benefited their officers, directors, or trustees. The IRS, with its crucial oversight role concerning charitable organizations, is a key player in this. An essential part of this oversight is providing organizations with strategies to help avoid the appearance or actuality of private benefit to individuals in a position of substantial authority. The recommended conflict of interest policy is a strategy we encourage organizations to adopt to establish procedures that will offer protection against charges of impropriety involving officers, directors, or trustees.
A conflict of interest is a situation where an individual’s duty to advance the charitable goals of the organization clashes with their personal financial interests.
Conflict of Interest in Business Transaction
For example, a conflict of interest occurs when an officer, director, or trustee votes on a contract between the organization and a business owned by the officer, director, or trustee.
Conflict of Interest Establishing Compensation
The conflict-of-interest policy plays a crucial role in ensuring that when actual or potential conflicts of interest arise, the organization has a process in place. This process requires the affected individual to disclose all relevant facts to the governing body. Conflicts of interest often surface when officers, directors, or trustees are considered for compensation or benefits.
Establishes Procedures and Protocol for Handling Conflicts of Interest
A conflict-of-interest policy also proactively establishes procedures for when and which individuals to excuse during the voting process when voting on such matters
Apart from any appearance of impropriety, organizations will lose their tax-exempt status unless they operate in a manner consistent with their charitable purposes. Serving private interests more than insubstantially is inconsistent with accomplishing philanthropic purposes, underscoring the urgency and importance of having a robust conflict of interest policy in place.
IRS Reference Page:
Form 1023: Purpose of Conflict-of-Interest Policy. https://www.irs.gov/charities-non-profits/form-1023-purpose-of-conflict-of-interest-policy