Nonprofit Conflict of Interest Policy Template
A conflict of interest policy with disclosure procedures, recusal rules, compensation approval and an annual acknowledgement form. The full Form 990 asks whether you have one. Free Word document, no email required.
The full Form 990 asks, in plain terms, whether your organization has a written conflict of interest policy. Answering no is not illegal. It is simply visible to every funder, journalist and rating site that reads your return.
This is the policy, with an annual acknowledgement form to circulate.
What a conflict of interest actually is
Not wrongdoing. A conflict exists whenever a director or officer has a financial interest that could reasonably be seen to influence a decision they are involved in, whether or not it does.
Having one is normal and often unavoidable in a small organization. A board member whose firm provides your insurance, a director whose spouse applies for a staff post, a treasurer who also owns the building you rent. None of these is misconduct.
The failure is never having the conflict. It is failing to disclose it, or voting anyway.
What the policy has to do
| Element | Why it is there |
|---|---|
| Definition of interested person | So nobody argues afterwards about whether it applied to them |
| Definition of financial interest | Covers indirect interests through business, investment or family |
| Duty to disclose | The obligation is on the individual, before any vote |
| Recusal procedure | Present information, then leave for discussion and vote |
| Record in minutes | The evidence that the process was followed |
| Compensation rules | Nobody votes on their own pay, comparability data recorded |
| Annual acknowledgement | Turns a filed document into an active practice |
The last one is what separates organizations that have a policy from organizations that have a file containing a policy.
The template
Article I. Purpose
The purpose of this policy is to protect the interests of [ORGANIZATION NAME] when it contemplates entering into a transaction or arrangement that might benefit the private interest of an officer or director, or might result in a possible excess benefit transaction.
Article II. Definitions
2.1 Interested person. Any director, officer or member of a committee with board-delegated powers who has a direct or indirect financial interest.
2.2 Financial interest. A 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 Corporation has a transaction or arrangement; a compensation arrangement with the Corporation or with any entity with which it has a transaction; or a potential interest of either kind in any entity with which the Corporation is negotiating.
2.3 Family. Spouse or domestic partner, parents, siblings, children, and the spouses of any of them.
Article III. Procedures
3.1 Duty to disclose. An interested person shall disclose the existence and nature of their financial interest to the Board before any vote on the matter.
3.2 Determining whether a conflict exists. After disclosure, the interested person shall leave the meeting while the remaining directors determine whether a conflict exists.
3.3 Addressing the conflict. The interested person may make a presentation but shall then leave during the discussion and the vote. The chair may appoint a disinterested person or committee to investigate alternatives. The Board shall determine by a majority vote of the disinterested directors whether the transaction is in the Corporation’s best interest, is fair and reasonable, and whether a more advantageous arrangement is reasonably attainable.
3.4 Violations. If the Board has reasonable cause to believe a member has failed to disclose an actual or possible conflict, it shall inform the member and afford an opportunity to explain. If the Board then determines that a failure to disclose occurred, it shall take appropriate disciplinary and corrective action.
Article IV. Records
The minutes of any meeting at which a conflict is considered shall record: the names of persons who disclosed a financial interest, the nature of that interest, any determination as to whether a conflict existed, the names of persons present for the discussion and vote, a record of any alternatives considered, and a record of the vote including abstentions.
Article V. Compensation
A voting member who receives compensation from the Corporation, directly or indirectly, is precluded from voting on matters pertaining to that compensation. The Board shall approve compensation only after reviewing comparability data for similar positions at similar organizations, and shall record that data in the minutes.
Article VI. Annual statements
Each director, officer and member of a committee with board-delegated powers shall annually sign a statement affirming that they have received, read and understood this policy, agree to comply with it, and understand that the Corporation is charitable and must engage primarily in activities furthering its exempt purposes.
Annual acknowledgement
Name: ____________________ Position: ____________________
I have received, read and understood the Conflict of Interest Policy of [ORGANIZATION NAME] and agree to comply with it.
Disclosures, if any (write “none” if none): ____________________
Signed: ____________________ Date: ____________
Using it properly
Adopt it by board resolution and record that in the minutes. Circulate the acknowledgement annually, ideally alongside your board’s first meeting of the year, and keep the signed copies with your permanent records.
When a conflict does arise, follow the procedure visibly. The minute recording that a director disclosed an interest, left the room, and did not vote is worth considerably more than the policy sitting in a folder.
Reference information, not legal advice. Have this reviewed before adopting it, particularly if your organization has related-party transactions or pays a board member.
Where conflicts actually come up
Small organizations often assume this policy is for someone else. The situations below are ordinary, and every one of them requires the procedure to be followed.
| Situation | What the policy requires |
|---|---|
| A director’s firm quotes for your insurance or accounting | Disclose, recuse, obtain comparable quotes, record the vote |
| A director’s spouse applies for a staff post | Disclose, take no part in the hiring decision |
| You rent space from a board member | Disclose, evidence that the rent is at or below market, record annually |
| A director also leads an organization you fund or partner with | Disclose, recuse from decisions affecting that organization |
| A founder serving as executive director is being paid | Disclose, comparability data reviewed, disinterested vote, no self-vote |
| A director’s business is a major donor and asks for recognition | Disclose, and be alert to whether the recognition has commercial value |
None of these is disqualifying. A board member willing to insure you at cost is an asset. The exposure comes from approving it in a meeting where they voted and the minutes say nothing.
What the Form 990 actually asks
Part VI of the full Form 990 asks whether the organization has a written conflict of interest policy, whether officers, directors and key employees are required to disclose annually, and whether the organization regularly and consistently monitors and enforces compliance. Schedule L then asks separately about transactions with interested persons.
Those answers are published. A funder reviewing you, a journalist, or a rating service reads them before they speak to you. Answering yes to the first question and no to the third is a common and avoidable combination, and it says the policy exists but is not used.
Filers of the 990-EZ and the 990-N are not asked in the same detail. That is a reporting threshold, not a governance one, and the reason to have the policy does not change with your revenue.
Making it a practice rather than a file
Three habits separate the two. Circulate the acknowledgement at the same meeting every year so it becomes calendar-driven rather than someone’s task. Put a standing item on the board agenda asking whether anyone has a conflict with anything on that agenda, which takes ten seconds when the answer is no. And when a conflict is disclosed, write the minute properly, naming who disclosed, who left, what alternatives were considered and how the vote fell.
That minute is the entire value of the policy. It is what an auditor, a regulator or a journalist will ask to see, and it is the only durable evidence that the board acted in the organization’s interest rather than a member’s.
Adopting it
Put adoption on a board agenda, vote, and record the date and the vote in the minutes. Then circulate the acknowledgement form to every director and officer and collect the signed copies.
If your bylaws contain a clause requiring a conflict of interest policy, note in the same minute that this policy is adopted pursuant to that article. That single sentence connects the two documents, which is what anyone reviewing your governance will be looking for.
Download this template
Free, no email address, no signup. The full text is on this page as well, so you can read it before you download it.
Questions people ask
Is a conflict of interest policy legally required?
Not by federal law as a condition of exemption, though a few states require one for certain organizations.
What is true is that the full Form 990 asks whether you have one, whether you require annual disclosure, and whether you regularly monitor and enforce it. Those answers are public.
Practically, most funders expect one, most auditors ask for it, and its absence is one of the first governance gaps anyone assessing you will notice.
Who has to sign the annual statement?
Every director, every officer, and any member of a committee with board-delegated powers.
Many organizations extend it to senior staff who influence purchasing or hiring, which is sensible if not strictly required.
Collect them at the same point every year so it becomes routine. Chasing signatures individually is how the practice quietly lapses.
What if a board member does have a conflict?
Follow the procedure, and record it. A disclosed and properly managed conflict is not a problem.
They disclose the interest, answer questions, then leave the room for the discussion and the vote. The disinterested directors decide whether the arrangement is fair, reasonable and the best available.
The minutes should show the disclosure, who was present, what alternatives were considered, and the vote with the abstention recorded. That record is what protects the organization if anyone questions the decision later.
Can a board member's company be paid by the nonprofit?
Often yes, provided the process is followed and the terms are fair.
The director discloses, recuses from the decision, and the disinterested directors satisfy themselves the arrangement is reasonable and that a better one is not reasonably available. Comparable quotes are the usual evidence.
Be aware this becomes visible. The full Form 990 asks about business transactions with interested persons, and the answer is public. That is not a reason to avoid a genuinely good arrangement, but it is a reason to document why it was the best one.
How often should the policy be reviewed?
Annually, at the same board meeting where acknowledgements are collected.
Review means the board actually looks at it, not that it appears on an agenda. Ask two questions: has anything changed in how we operate that the policy no longer covers, and did we follow it every time it applied this year.
Record the review in the minutes. It is one of the questions the Form 990 asks.
Does this cover non-financial conflicts?
This policy, like the model most organizations use, addresses financial interests specifically. That is what the IRS is concerned with and what the Form 990 asks about.
Non-financial conflicts are real, a director sitting on a competing organization's board, or a personal relationship affecting a hiring decision, and are not covered here.
Some organizations add a duty of loyalty clause to address them. If that is a live risk for you, raise it when you have the policy reviewed rather than editing it in yourself.
What is an excess benefit transaction?
A transaction where an exempt organization provides an economic benefit to a person with substantial influence over it that exceeds the value received in return. Paying a board member far above market rate for services is the classic example.
The consequences fall on individuals, not just the organization. Excise taxes can apply to the person who received the benefit and, separately, to the managers who knowingly approved it.
Following the procedure in Article V, disinterested approval with comparability data recorded, is the standard protection against this.
Do we need a separate policy if our bylaws mention conflicts?
Yes. A bylaws clause requiring a conflict of interest policy is not itself the policy.
Article VII of a typical set of bylaws says the board shall adopt and annually review a written policy and that interested directors shall recuse themselves. That is the requirement. This document is the thing it requires.
An organization whose bylaws reference a policy that was never adopted has a governance gap that is visible the moment anyone reads both documents.
This is reference information, not legal or tax advice. Rules vary by state and change over time. For a decision that carries real consequences, check the current text at irs.gov or your state registry, and talk to a nonprofit attorney or CPA.