By Rosalie W. Miller, CPA
Most likely, your nonprofit organization relies on your board members’ 
knowledge, experience, and community connections to help it carry out its mission. Finding board members who possess these traits can be a challenge. Even when you are successful, these board members may face challenges in carrying out their responsibilities caused precisely by the associations and connections they have. This is why it is important for board members, and others connected with your organization, to be able to recognize potential conflicts of interest, and when they are identified, know what to do about them.
Nonprofit board and staff members should act in the best interest of the organization, rather than in the furtherance of personal interests or interests of third parties. A nonprofit organization should have policies in place, which are implemented, to prevent actual, potential, or perceived conflicts of interest. The best way to do this is to have a conflict of interest policy. The policy should apply to board members, staff and volunteers who have significant independent decision making authority regarding resources of the organization. The policy should identify the types of conduct or transactions that raise conflict of interest concerns, should set forth procedures for disclosure of actual or potential conflicts, and should provide for review of individual transactions by the uninvolved members of the board of directors.
Once this policy is in place, board members, staff and volunteers should be provided with a conflict of interest statement which summarizes the key elements of your organization’s conflict of interest policy. The statement should provide space for the board member, employee or volunteer to disclose any known financial interest that the individual, or a member of the individual’s family, has in any business entity which transacts business with the organization. The statement should be provided to and signed by these individuals at the time of their initial affiliation with your organization, and at least annually thereafter.
In this day of increased public scrutiny of nonprofit organizations, it is important that yours is perceived in the best light possible. Disclosure is required on the Form 990 “Return of Organization Exempt From Income Tax” as to whether or not your organization has a conflict of interest policy, if annual disclosure of conflicts of interest are required, and whether the organization monitors and enforces compliance with the policy and how.
The IRS includes a sample conflict of interest policy in Appendix A to the instructions for completing Form 1023 “Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code”, which can be found on their website. For further information on or assistance with this topic, please contact Rosalie Miller at 617-426-9440 or rmiller@pmn.com.
Note: This article represents a general overview of Federal and/or Massachusetts general topic issues or developments and should not be relied upon without an independent, professional analysis of how any legal provisions alluded to may apply in a specific situation.
IRS CIRCULAR 230 NOTICE: In compliance with U.S. Treasury Circular 230 Regulations and any applicable state laws, we hereby notify you that any tax advice contained in the body of this document, or attachments thereto, was not intended or written to be used, and cannot be used, by the recipient or any other party for the purpose of (1) avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein.