Glossary
Compliance & Tax

Conflict of Interest Policy

By: Alec Hollingsworth
Updated:  
June 2, 2025

DEFINITION:

A Conflict of Interest Policy guides nonprofits in identifying and managing situations where personal interests could impact organizational decisions.
A Conflict of Interest Policy is a formal document adopted by nonprofit organizations to identify, disclose, and manage situations where personal interests of board members, officers, or staff could improperly influence their decisions on behalf of the organization. The policy outlines procedures for disclosing potential conflicts, determining whether a conflict exists, and deciding how to address it. This ensures transparency, maintains public trust, and helps to comply with IRS and state regulations. An effective policy typically requires individuals to submit annual disclosures and recuse themselves from related decisions, safeguarding the organization's integrity and reputation.

Key Takeaways

  • Promotes ethical decision-making and transparency
  • Required by the IRS for Form 990 reporting
  • Helps prevent legal and reputational risks
  • Mandates disclosure and management of potential conflicts

Why It Matters

It helps nonprofits maintain transparency, trust, and regulatory compliance.

Real World Example

A local arts nonprofit’s board member owns a marketing firm. When the nonprofit needs marketing services, the board member discloses their interest according to the organization’s Conflict of Interest Policy. The board, excluding the interested member, discusses and votes on whether to contract with the firm. This process, documented in board minutes and annual disclosures, ensures decisions are made in the nonprofit’s best interest and maintains public trust. Using accounting software like Aplos, the nonprofit records the disclosure and the decision, providing an audit trail for transparency and compliance.

How Aplos Helps

Aplos enables nonprofits to securely store and track their Conflict of Interest Policy documents. Administrators can also use Aplos to document annual disclosures and board approvals, helping organizations ensure compliance and keep an accurate audit trail.
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Frequently Asked Questions

What is a Conflict of Interest Policy in a nonprofit?

It is a set of guidelines that help identify and manage personal interests that could affect decisions made by someone in the organization.

Why do nonprofits need a Conflict of Interest Policy?

It’s required for IRS compliance and helps protect the organization from ethical, legal, and reputational risks.

How often should conflicts be disclosed?

Typically, conflicts are disclosed annually and whenever a new potential conflict arises during the year.

Who should follow the Conflict of Interest Policy?

All board members, officers, and key staff should adhere to the policy and disclose any potential conflicts.

Can a board member vote if they have a conflict?

No. The policy requires that individuals with a conflict recuse themselves from related discussions and decisions.

Related Terms

Accrual Basis
Sub‑Ledger
Accounts Payable
Whistleblower Policy
Nonprofit Corporation
Variance Analysis

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