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Nonprofit board members are entrusted with advancing the organization’s mission, not their own personal interests. But when personal relationships, financial interests, or outside affiliations intersect with board decisions, they can create legal and ethical risks.

Having a clear policy helps prevent not just conflicts of interest but internal disputes over what personal financial connections or benefits are acceptable. When expectations are clearly defined, boards are less likely to be caught off guard by the questionable arrangements by members or forced into uncomfortable debates.

What Is a Conflict of Interest Policy?

A conflict of interest policy is a formal document that requires board members, executives, and key staff to disclose situations where personal or financial interests might interfere with their duties to the organization. The policy sets expectations for transparency, outlines how disclosures should be handled, and provides a process for recusal or board review.

When Are Conflict of Interest Policies Legally Required?

The IRS strongly encourages all 501(c)(3) organizations to adopt conflict of interest policies and asks about them directly on Form 990. While not strictly required under federal law, having a written policy in place is considered a best practice for governance and can help demonstrate compliance if the organization is ever audited or investigated.

In Georgia, nonprofit corporations are expected to operate with a level of fiduciary responsibility that includes avoiding self-dealing. A conflict of interest policy reinforces those duties by guiding the board through proper handling of potentially compromising situations.

What Happens If You Don’t Have One?

Without a conflict of interest policy, your nonprofit may struggle to respond appropriately when questionable situations arise. Regulators, funders, and major donors often view the absence of a policy as a red flag, especially if the organization receives government grants or public contributions. Watchdog organizations (like Charity Navigator or GuideStar) expect policies to be in place and may factor them into evaluations.

In the event of an audit or legal dispute, a lack of clear procedures can make it harder to defend decisions, particularly if they involved board members or related parties.

Even well-intentioned actions can be called into question if there's no documentation showing that the board evaluated potential conflicts transparently. In some cases, failing to address conflicts may jeopardize your nonprofit’s tax-exempt status or trigger financial penalties.

What Should the Policy Include?

At minimum, a nonprofit conflict of interest policy should include:

• A clear definition of what constitutes a conflict.
• A duty to disclose any actual or potential conflicts.
• A process for evaluating the disclosed conflict, typically involving board discussion and a vote (without the conflicted individual present).
• Documentation procedures to show how the conflict was managed.
• Consequences for failing to disclose or comply.

Some nonprofits also require annual disclosure statements or conflict certifications as part of board member onboarding.

Do Nonprofits Need More Than One Conflict of Interest Policy?

Most nonprofits only need one comprehensive conflict of interest policy, but larger organizations may create variations or supplemental procedures depending on context, such as one policy for the board, another for staff, or a separate policy covering related-party transactions. The goal is consistency in values with flexibility in application based on role and responsibility.

Why It Matters for Board Integrity and Legal Protection

Even perceived conflicts of interest can damage donor trust, invite regulatory scrutiny, and undermine internal cohesion. A well-written and consistently enforced policy:

• Helps maintain public confidence in the organization’s mission.
• Protects board members from claims of self-dealing.
• Supports clear, ethical decision-making.
• Reinforces fiduciary duties of care and loyalty.

Enforcing a Conflict of Interest Policy Is Just as Important as Writing One

Drafting a conflict of interest policy isn’t just a box to check. It must be actively used. That means:

• Reviewing disclosures annually and at key decision points.
• Recording recusal decisions in meeting minutes.
• Updating policies as your organization grows or changes.
• Involving legal counsel when complex relationships are disclosed.

Protect Your Nonprofit and Its Leadership With a Clear, Thorough Conflict of Interest Policy

Conflict of interest policies aren’t just safeguards for the organization, they also protect individual board members from liability and reputational damage. If your nonprofit doesn’t have a current, enforceable policy in place, now is the time to act.

If your nonprofit needs help drafting a policy that fits your organization’s structure or addresses a conflict that’s already arisen, the Law Office of Cameron Hawkins can help.

Nonprofit general counsel Cameron Hawkins assists Atlanta nonprofits in creating and enforcing governance safeguards that reduce risk and strengthen board operations. Call 678-921-4225 to schedule a consultation.