ETH 2 - Conflict of Interest*
The organization prevents the enrichment of insiders and other abuses through the adoption and enforcement of a conflict of interest policy consistent with state laws and regulations.
Interpretation: COA does not provide a definition of “conflict of interest,” and expects an organization’s policy to do so.
Note: The Panel on the Nonprofit Sector, Interim Report, Section 4, Conflict of Interest Policy Disclosure contains a useful description of the Conflict of Interest issue. References to the Internal Revenue Code note that the Code defines a conflict of interest and that: “All states mandate that directors and officers owe a duty of loyalty to the organization, and improperly benefiting from a transaction involving a conflict of interest more than likely involves a violation of the duty of loyalty. Some state statutes specifically penalize participation in transactions involving conflicts of interests unless the organization follows certain prescribed procedures.”
Note: Please see Conflict of Interest Policy and Procedure Template in the Announcements Section of your My COA account for additional assistance with this standard.
A conflict of interest policy is tailored to the organization’s specific needs and characteristics, and:
Interpretation: If the conflict of interest policy requires signatures of board members and staff, these signed forms should be available with the policy. The conflict of interest policy should ensure that governing body or advisory group members who are personnel or relatives of personnel excuse themselves on matters where their objectivity would be compromised, e.g., promotions, salaries, specific benefit packages. The standard does not require an exhaustive list of conflict situations, but the policy should provide a framework for determining when a situation constitutes conflict.
Interpretation: The organization should note that establishing and enforcing a conflict of interest policy is an important safeguard for organizations against unethical or illegal practices, and that the Form 990 for charitable organizations may, in the future, include disclosure of the adoption of a conflict of interest policy.
Conflict of interest policies and procedures ensure that contracts and business arrangements serve the organization’s and service recipient’s best interests, not private interests.
Organization members, community partners, governing body and advisory group members, personnel, and consultants who have a financial interest in the organization’s assets, business transactions, leases, or professional services:
Note: Element (b) does not apply to owners in private, for-profit organizations.
The network has a process for ensuring that its activities are carried out in an even-handed, principled manner and in the interests of service recipients.
related ETH 1.03
Interpretation: It is essential that the network guard against any real or perceived conflict of interest in the manner in which it conducts its business, especially with regard to assessment, referral, and utilization management practices.
NA The organization is not a network management entity.