Conflict of Interest Policy nonprofit sample: Complete Template for Nonprofits

Running a nonprofit without a conflict of interest policy is like sailing without a rudder. It’s not just a small oversight—it’s a major risk to your mission, your credibility, and the trust you've built with donors. Think of this policy as a shield, protecting your organization's reputation and ensuring your tax-exempt status stays safe and sound.

Why Your Nonprofit Needs a Conflict of Interest Policy

This policy is your playbook for making ethical decisions. It draws clear lines in the sand for those tricky situations where a personal interest might cloud professional judgment. And let's be clear: this isn't just about catching someone with their hand in the cookie jar. It’s about expertly navigating the gray areas that pop up in any organization.

Defining a Conflict of Interest

So, what exactly is a conflict of interest? It happens anytime a person's private interests—or those of a family member—clash, or even appear to clash, with the best interests of the nonprofit.

They come in a few common flavors:

• Financial: Imagine a board member owns a printing company that submits a bid to print your annual report. That’s a financial conflict.
• Relational: The Executive Director’s nephew applies for a high-level job opening at the nonprofit.
• Positional: A key staff member also sits on the board of another organization you frequently partner with, creating a potential for divided loyalties.

The crucial part here is the potential for a biased decision. It doesn't matter if anything bad actually happens. A solid policy tackles the mere appearance of a conflict just as seriously as an actual one.

A well-crafted policy isn't about showing distrust. It’s about giving your board and staff a clear, transparent roadmap for handling tough calls. It’s a tool that ensures every single decision is driven by one thing: the mission.

The Real-World Consequences of Neglect

Putting this on the back burner can have serious consequences. Since 2008, the IRS has specifically asked about conflict of interest policies on the Form 990. It’s no longer optional.

Charity watchdogs are also paying close attention. Charity Navigator, for instance, can dock an organization's accountability score by up to 25% for having a weak policy or none at all. That kind of rating hit can directly affect your ability to secure funding.

Organizations also have to understand broader compliance frameworks to make sure their internal policies are up to snuff with all legal and ethical standards. At the end of the day, a formal policy isn't just bureaucratic paperwork. It's a foundational tool that supports your entire https://www.fundsprout.ai/resources/nonprofit-organizational-structure, builds a culture of integrity, and protects the very mission you work so hard to serve.

What Every Conflict of Interest Policy Must Cover

A solid conflict of interest policy is far more than a statement of good intentions. It's a practical, working document built from a few essential parts. Each piece has a specific job, and together, they form a shield that protects your nonprofit's integrity, mission, and legal standing.

Let’s move past the checklist mentality and dig into what your policy absolutely must include and, more importantly, why each part is so critical for real-world governance.

First up, you need a clear Purpose Statement. This isn't just fluffy filler text. It’s your opening declaration, setting the tone by stating the nonprofit's commitment to ethical conduct and protecting its tax-exempt status. It frames the policy as a positive tool for good governance, not a rulebook for punishment.

Who and What Does This Policy Cover?

For any policy to work, everyone needs to be on the same page. This section is all about creating a shared vocabulary so there’s no confusion about who is covered and what constitutes a conflict. If these terms are vague, people might not even realize when they're in a conflicted situation.

Your policy has to spell out exactly who qualifies as an "Interested Person." This almost always includes:

• All members of the Board of Directors
• Principal officers (like the Executive Director, CFO, or COO)
• Key staff with significant influence over financial decisions
• Family members of anyone listed above
• Any business where an interested person (or their family) has a major financial stake

Then, you need a solid definition of a "Conflict of Interest." A good definition will cover any situation where an interested person has a financial interest—or even a significant personal one—that could potentially compromise their judgment or loyalty to the nonprofit. Make sure your language addresses not just actual conflicts but also potential and perceived ones.

Key takeaway: The "appearance of impropriety" is a critical concept. Even if a decision is completely fair, if it looks biased to an outsider, it can still shred your reputation. Your policy must be strong enough to manage perceptions, not just proven conflicts.

Putting Procedures into Action

This is where the rubber meets the road. This section is the "how-to" guide that outlines exactly what to do when a conflict pops up. The steps need to be simple, direct, and easy for anyone to follow.

It all starts with the Duty to Disclose. Your policy must require every interested person to immediately and fully disclose any potential conflict to the board as soon as they become aware of it. This isn't a one-and-done task; it's an ongoing responsibility.

Once a conflict is on the table, the policy must trigger the Procedures for Addressing the Conflict. This is a non-negotiable sequence:

1. Recusal: The interested person must leave the room during the discussion. No exceptions.
2. Abstention: The interested person is absolutely prohibited from voting on the matter.
3. Deliberation: The remaining, disinterested board members discuss the transaction. Their goal is to determine if it's fair, reasonable, and genuinely in the nonprofit's best interest.
4. Documentation: The entire process—from the initial disclosure to the board's discussion and the final vote—must be meticulously recorded in the official board meeting minutes. This creates an essential audit trail.

To make this crystal clear, a well-structured policy will lay out these core elements in an easy-to-understand way.

Here’s a quick summary of the non-negotiable sections your policy needs.

Key Components of a Nonprofit Conflict of Interest Policy

Having these components in place turns your policy from a piece of paper into a powerful governance tool. The sample policy and disclosure form we provide later will show you how to structure these elements into a document that's ready for your board to adopt.

Your Customizable Nonprofit Conflict of Interest Policy

Alright, let's roll up our sleeves and get this done. Theory is great, but what you really need is a solid policy you can put to work right away.

Below is a field-tested conflict of interest policy that I’ve seen work for dozens of small to mid-sized nonprofits. It's not a generic, watered-down template. It’s a comprehensive document that hits all the essential legal points and procedural steps your organization needs to stay protected and transparent.

I've designed it to be as simple as possible. Just copy the text, pop in your organization's name where you see [Nonprofit Name], and you're well on your way. You'll also notice I’ve added short annotations next to the more "legal-sounding" sections. These are my notes to you, explaining why a particular clause is so important and how you might think about adapting it.

Stick with me to the end, because right after the policy, you'll find the tool that makes it all work: a sample Annual Disclosure Form. A policy is just a piece of paper until you put it into practice.

Conflict of Interest Policy for [Nonprofit Name]

Article I: Purpose

The purpose of this conflict of interest policy is to protect the interests of [Nonprofit Name] (the "Organization") when it is contemplating entering into a transaction or arrangement that might benefit the private interest of an officer or director of the Organization or might result in a possible excess benefit transaction. This policy is intended to supplement but not replace any applicable state and federal laws governing conflict of interest applicable to nonprofit and charitable organizations.

Why this matters: This is your opening statement, and it sets the right tone. It shows you're committed to good governance and signals that this document is here to protect the organization's mission and—critically—its tax-exempt status.

Article II: Definitions

1. Interested PersonAny director, principal officer, or member of a committee with governing board delegated powers, who has a direct or indirect financial interest, as defined below, is an interested person.

2. Financial InterestA person has a financial interest if they have, directly or indirectly, through business, investment, or family:

   • 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.

   Compensation includes direct and indirect remuneration as well as gifts or favors that are not insubstantial. A financial interest is not automatically a conflict of interest. As we’ll see in Article III, a person who has a financial interest is only deemed to have a conflict if the board decides one exists.

Why this matters: Getting these definitions right is everything. This language is intentionally broad to catch not just the obvious financial ties but also the indirect ones—like a board member's spouse owning a company you're thinking of hiring.

Article III: Procedures

1. Duty to DiscloseIn connection with any actual or possible conflict of interest, an interested person must disclose the existence of their financial interest. They must be given the opportunity to share all material facts with the directors and committee members considering the proposed transaction.

2. Determining Whether a Conflict of Interest ExistsAfter the interested person discloses their financial interest and all the key facts, they must leave the meeting. This is non-negotiable. The remaining board or committee members will then discuss and vote on whether a conflict of interest actually exists.

Article IV: Procedures for Addressing the Conflict of Interest

1. An interested person can make a presentation at the meeting, but once they're done, they must leave for the remainder of the discussion and the vote.

2. The board or committee chairperson should, if appropriate, appoint a disinterested person or committee to research alternatives to the proposed deal.

3. After doing its homework, the board or committee must determine if the Organization could get a better deal from someone else—a deal that wouldn't create a conflict.

4. If a more advantageous, conflict-free deal isn't reasonably possible, the board or committee will then vote (with only disinterested directors participating) on whether the transaction is in the Organization's best interest and is fair and reasonable. Based on that vote, they'll decide whether to move forward.

Article V: Violations of the Conflict of Interest Policy

1. If the board has a good reason to believe a member has failed to disclose a conflict, it must inform that member and give them a chance to explain themselves.

2. If, after hearing the member's side and investigating further, the board determines they did fail to disclose a conflict, it will take appropriate disciplinary and corrective action.

Article VI: Records of Proceedings

The minutes for all board and committee meetings must include:

1. The names of anyone who disclosed or was found to have a financial interest, the nature of that interest, what steps were taken to determine if a conflict existed, and the board’s final decision.

2. The names of the people present for the discussion and vote, a summary of the conversation (including any alternatives considered), and a record of the final vote.

Article VII: Annual Statements

Every director, principal officer, and voting committee member must annually sign a statement confirming they have:

• Received a copy of the conflicts of interest policy.
• Read and understood the policy.
• Agreed to comply with the policy.
• Understood that the Organization is a charity and must primarily engage in activities that accomplish its tax-exempt purposes to maintain its federal tax exemption.

---

Sample Annual Conflict of Interest Disclosure Form

This second piece is just as crucial. The annual form is what turns your policy from a document sitting in a binder into a living, breathing part of your governance.

[Nonprofit Name]Annual Conflict of Interest Disclosure Statement

I have received and carefully read the Conflict of Interest Policy for directors, officers, and committee members of [Nonprofit Name]. I understand its requirements and agree to comply with the policy at all times.

Please check one of the following:

☐ I am not aware of any potential conflict of interest that I or any of my related parties have with [Nonprofit Name].

☐ I am disclosing the following potential conflicts of interest. (Please describe below and attach additional pages if necessary.)

Description of Potential Conflict:

---

---

---

I understand that my obligation to disclose potential conflicts of interest is ongoing. If any new potential conflicts arise during the year, I will promptly notify the Board Chair or Executive Director.

Printed Name: ____________________________

Signature: _______________________________

Date: ___________________________________

How To Formally Adopt and Implement Your New Policy

Okay, so you've got a fantastic, customized conflict of interest policy drafted. That’s a huge step. But a document sitting in a folder has no real power until it's officially adopted by your board and truly woven into your organization's culture.

This process is more than just a formality; it's a critical governance function. Think of it as turning those words on a page into a protective shield for your mission. The journey from a draft to an active, living policy involves a few key stages, starting with how you bring it to your board.

Presenting the Policy to Your Board

First things first, don't just tack this onto the end of a long meeting agenda. This is important stuff. Position the policy discussion as a foundational step toward stronger governance and smarter risk management.

Your goal here is to spark a thoughtful discussion, not just get a quick rubber stamp of approval. Make sure to send the draft policy to all board members well ahead of the meeting. This gives everyone a chance to actually read it, digest it, and come prepared with questions.

When you present it, frame the policy as a tool for empowerment. It’s not about policing people—it’s about giving everyone clear, agreed-upon guidelines for handling tricky situations that are bound to come up. Be sure to walk them through the most important parts, like the procedures for disclosing a potential conflict and recusing oneself from a vote. Everyone needs to be crystal clear on their obligations.

Encourage questions and be ready to talk through a few "what if" scenarios. This kind of collaborative approach builds genuine buy-in and ensures the final version is something the whole board understands and stands behind. After all, your conflict of interest policy is a core part of your organization's ethical framework, much like an actionable blueprint for an organizational code of conduct.

Documenting the Adoption in Your Minutes

Once the discussion wraps up and any final tweaks are made, it’s time to hold a formal vote. The motion should be direct and unambiguous: "to adopt the Conflict of Interest Policy as presented."

This is where your record-keeping has to be on point. The official board meeting minutes must explicitly state that the policy was discussed, a vote was taken, and the motion passed. This entry becomes your official plan of record, creating an indispensable paper trail for auditors, funders, and even the IRS. You can learn more about the importance of establishing a clear plan of record in our detailed guide.

A policy is only as strong as its official adoption. Simply emailing a final version isn't enough. The formal vote and its documentation in the meeting minutes are what give the policy its legal and operational authority.

Rolling Out the Policy and Managing Disclosures

With the policy officially on the books, your focus now shifts to putting it into action. Start by distributing the final, board-approved version to every "interested person" as defined in your policy—this typically means all board members, officers, and key staff.

This simple infographic breaks down the process of turning your sample into an active policy.



As you can see, a well-defined process removes complexity and ensures your governance is applied consistently every time.

Now for the most critical part of the rollout: collecting the signed Annual Disclosure Forms. This needs to happen immediately after the policy is adopted, and then you'll repeat the process every single year for every required person. This yearly ritual accomplishes two key things: it ensures you remain in compliance and, just as importantly, it keeps the principles of transparency and ethical conduct top-of-mind for your entire team.

This disciplined approach has a real, measurable impact. Consider this: 92% of 4-star rated organizations on Charity Navigator have comprehensive policies like this in place, a stark contrast to just 41% of 1-2 star entities. That data tells you everything you need to know about how funders and watchdog groups view this process. It’s a key indicator of a healthy, trustworthy nonprofit.

Navigating Real-World Conflicts: Scenarios and Common Pitfalls



A policy on paper is one thing; putting it to work when things get messy is another. And trust me, tricky situations are not a matter of if, but when. How your board handles these moments is what truly demonstrates your nonprofit's integrity.

Let’s get practical and walk through a few scenarios I've seen play out time and again. These aren't just hypotheticals. With 67% of compliance officers reporting a recent spike in conflict disclosures, the pressure is on. The stakes are real—the IRS revoked 1,142 tax exemptions in FY2023, and 19% of those cases involved private benefit violations stemming from poorly managed conflicts.

The Board Member Vendor

This is the classic example. Your board member, Sarah, owns a top-notch local printing company. Your nonprofit needs to get its annual report printed, and her company submits a bid that looks great. What do you do?

Your policy is your guide. Here's how to navigate it:

• Full Disclosure: The second her company's bid is on the table, Sarah must formally disclose her financial interest to the entire board. No hesitation.
• Recusal is Non-Negotiable: When the board discusses the printing contract, Sarah must leave the room. She can't answer questions, she can't advocate for her bid, and she absolutely cannot vote.
• Do Your Homework: The remaining board members now have a job to do. They need to solicit at least two other competitive bids from different vendors to benchmark Sarah's proposal. Is her price genuinely fair? Is the quality comparable?
• Document Everything: Let's say Sarah's company really does offer the best value. The board can vote to approve it. But the meeting minutes must tell the whole story: Sarah's disclosure, her recusal, the other bids you reviewed, and the final vote.

This process protects everyone. Your nonprofit gets a fair deal, and Sarah is shielded from any accusations of using her position for personal gain.

Key Insight: The point isn't to automatically blacklist board members from being vendors. The goal is to ensure that if you do engage in a transaction with one, you have a rock-solid, documented process proving it was the best possible choice for the organization.

The Influential Donor's "Request"

Here’s another one that can make people sweat. A major donor, someone whose support is vital, "strongly suggests" you hire their nephew for your open marketing role. The nephew seems capable, but he isn't the strongest candidate you've interviewed.

This might not be a direct financial conflict for a board member, but it wades deep into the waters of relational conflicts and the "appearance of impropriety." Your policy gives you the backbone to handle this with grace and firmness.

The hiring decision must be driven by your mission, not by donor pressure. A good approach is to thank the donor for the recommendation while gently explaining that your established hiring process ensures you find the absolute best person for the job. This reinforces your ethical standards—a cornerstone of the nonprofit fundraising best practices that build the kind of trust that lasts.

Pitfalls to Watch Out For

Even with a solid policy, it's easy to stumble. Keep a close eye out for these common mistakes:

• Playing Favorites: You can't enforce the policy strictly for a small-time vendor but bend the rules for a powerful board member. Consistency is your only option.
• Ignoring the "Appearance" Problem: A situation doesn't have to be a technical, legally defined conflict to tarnish your reputation. If it looks bad to an outsider, it is bad for your organization. Treat perceptions with the same seriousness as actual conflicts.
• Sloppy Record-Keeping: In the eyes of the IRS and the public, if it wasn't documented in the minutes, it never happened. Meticulous notes are your best defense if anyone ever questions a decision.

Common Questions About Nonprofit COI Policies

Even the clearest policy can leave people with questions. Let's be honest, navigating the ins and outs of conflict of interest rules can feel a little tricky, especially in small nonprofits where board members and staff often have deep roots in the community.

Here are some of the most common questions that come up, along with straightforward answers to help you handle these situations confidently.

Does Every Nonprofit Really Need a COI Policy?

Yes, absolutely. While there isn't a federal law mandating one for every single 501(c)(3), the IRS strongly encourages it. In fact, they ask point-blank if you have a written COI policy on your annual Form 990. A "no" on that line is a huge red flag for regulators, funders, and major donors.

But this goes way beyond just checking a box for the IRS. A solid COI policy is a cornerstone of good governance. It shows everyone—from your biggest foundation backer to your smallest individual donor—that you're serious about ethical decision-making. Groups like Charity Navigator also look for these policies when they rate organizations, and a good rating can make or break your fundraising efforts.

What’s the Difference Between an Actual and a Potential Conflict?

This is a critical distinction, and your policy needs to cover both. Think of it as the difference between a fire and a pile of oily rags sitting next to a furnace.

An actual conflict of interest is happening right now. A person's private interests are actively competing with their duty to the nonprofit.

• Real-world example: A board member's construction company is bidding on the contract to renovate your new office. When the board votes, they vote to give the contract to their own company.

A potential conflict of interest is a situation where a conflict could easily arise. Nothing improper has happened yet, but the circumstances create a clear risk.

• Real-world example: A board member’s daughter just applied for a job as your nonprofit’s new marketing coordinator. The board member is on the hiring committee.

A great policy doesn't just clean up actual conflicts; it helps you spot and manage potential conflicts before they ever have a chance to harm your organization's integrity.

How Often Should We Revisit Our Policy?

Your board should give the policy itself a fresh look every one to two years. Things change—your operations evolve, new situations arise, and you want to make sure your policy still makes sense for how you work today.

But here’s the non-negotiable part: you must collect signed disclosure forms from every director, officer, and key employee every single year. This annual ritual does more than just create a paper trail. It keeps ethical conduct top-of-mind and reinforces that integrity is a core part of your culture.

Who Exactly Needs to Sign a Disclosure Form?

To be effective, your policy needs to cover everyone who holds significant influence over your nonprofit's decisions and finances. You want to cast a wide enough net to truly protect the organization.

At the bare minimum, these individuals must sign a disclosure form annually:

• All members of your Board of Directors
• Your principal officers (like the Executive Director, CEO, CFO, and COO)

Smart organizations often extend this requirement to include other key people. This might be program managers with control over large budgets or even long-term volunteers who have a major say in operational matters. When you're on the fence about whether to include someone, the safer bet is always to have them sign.

---

Keeping up with governance and grant requirements can feel like a full-time job. Fundsprout is an AI-powered platform designed to help you stay on track, from discovering new funding opportunities to reporting on your impact. Our tools help you build compelling proposals and maintain a perfect audit trail, freeing you up to focus on what really matters—your mission. See how Fundsprout can help your nonprofit thrive.