A conflict of interest policy helps a not-for-profit board make decisions transparently and protect trust in the organisation.
Conflicts of interest are common in charities, associations and community organisations. Board members, committee members and Responsible People often bring deep community connections, professional experience, business relationships and personal commitment to the organisation’s purpose.
Those connections can be valuable. But sometimes they can also create situations where a person’s personal interests, professional interests or other roles could influence a decision, or appear to influence it.
That does not automatically mean anyone has done something wrong.
A conflict of interest is not always a problem in itself. The real issue is whether the conflict is identified, declared, recorded and managed properly.
For not-for-profits, this matters because trust is central to good governance. Donors, funders, members, staff, volunteers, service users and the broader community need confidence that decisions are being made in the organisation’s best interests.
This article explains what a conflict of interest policy is, why it matters for not-for-profits and charities, and how boards should manage conflicts in a practical and transparent way.
What is a conflict of interest policy?
A conflict of interest policy is a document that explains how an organisation identifies, declares, records and manages conflicts of interest.
It gives board members, committee members, Responsible People, staff and volunteers a clear process to follow when personal interests or other duties could affect a decision.
A good policy should explain:
- what a conflict of interest is
- who the policy applies to
- when a conflict should be declared
- how conflicts should be recorded
- who decides how a conflict will be managed
- what happens during meetings when a conflict arises
- how the conflict of interest register is maintained
- how breaches of the policy are handled
- how often the policy is reviewed
The purpose is not to stop people with connections or experience from serving on a board. The purpose is to make sure decisions are made openly and fairly.
What is a conflict of interest?
A conflict of interest happens when a person’s private interests, relationships or other responsibilities could conflict with their duty to act in the best interests of the organisation.
In a not-for-profit board setting, conflicts may involve:
- a financial interest
- a personal relationship
- a family connection
- a business interest
- employment or professional duties
- another board or committee role
- membership of another organisation
- a strong personal benefit or disadvantage from a decision
Conflicts can be financial or non-financial. They can also be actual, potential or perceived.
These distinctions are important because a board should not only manage conflicts that have already affected a decision. It should also manage situations that could reasonably create concern.
Actual, potential and perceived conflicts explained
Not every conflict looks the same. A good conflict of interest policy should explain the difference between actual, potential and perceived conflicts.
Actual conflict of interest
An actual conflict exists when a person’s interests are directly in conflict with their duty to the organisation.
For example, a board member owns a business that is being considered for a paid contract with the charity. The board member has a personal financial interest in the decision.
In this situation, the conflict is real and immediate. It should be declared and managed before the board discusses or decides on the contract.
Potential conflict of interest
A potential conflict exists when a conflict could arise in the future.
For example, a committee member works for a funding body that the organisation may apply to later in the year. There may not be a conflict today, but one could arise when the funding application is discussed.
Potential conflicts should still be declared early. This allows the board to decide how to manage the situation if it becomes relevant.
Perceived conflict of interest
A perceived conflict exists when someone outside the organisation could reasonably think a person’s interests may influence their decision, even if the person believes they can act fairly.
For example, a board member’s close friend applies for a senior staff role. The board member may feel they can be objective, but others could reasonably question whether the relationship influenced the process.
Perceived conflicts matter because governance is not only about doing the right thing. It is also about maintaining trust that the right thing has been done.
Conflicts are not always wrong
One of the most important messages for not-for-profit boards is this: having a conflict of interest is not automatically wrong.
In many community organisations, conflicts are common because people are deeply connected to the communities they serve.
For example:
- A board member may also be a donor.
- A committee member may also be a service user.
- A Treasurer may work for a bank used by the organisation.
- A director may sit on the board of a partner organisation.
- A volunteer may have a family member employed by the charity.
- A local business owner may offer services to the organisation.
These situations do not always mean the person must leave the board or that the organisation cannot proceed with a decision.
The key is transparency.
The conflict should be declared, recorded and managed in a way that protects the organisation and the integrity of the decision.
Why conflict of interest policies matter for charity governance
Conflict of interest policies support good charity governance because they help boards make decisions openly, fairly and in the organisation’s best interests.
They also help Responsible People understand their duties.
For registered charities, Responsible People are expected to act honestly and fairly in the charity’s best interests, not misuse their position or information, and disclose conflicts of interest.
A conflict of interest policy helps turn those duties into a practical process. This connects closely with Governance Standard 5, which sets out important duties for Responsible People involved in charity governance.
A clear policy helps the board:
- protect trust in decisions
- reduce the risk of personal interests influencing outcomes
- show that conflicts are handled consistently
- support accountability to members, funders and donors
- protect Responsible People from unfair criticism
- maintain better meeting records
- strengthen not-for-profit governance
- meet charity governance expectations
Without a clear policy, boards may manage conflicts inconsistently. One conflict may be handled carefully, while another is ignored because the person involved is well known or trusted.
A policy helps remove uncertainty and personal discomfort from the process.
Who should a conflict of interest policy apply to?
A conflict of interest policy should usually apply to anyone who can influence decisions or access sensitive information.
This may include:
- board members
- committee members
- directors
- trustees
- Responsible People
- the CEO or Executive Officer
- senior managers
- finance staff
- staff involved in procurement or recruitment
- volunteers involved in decision-making
- subcommittee members
- advisers or consultants, where relevant
The policy may apply differently to different people. For example, board members may need to make annual declarations, while staff may be required to declare conflicts when they arise.
The main point is that anyone involved in important decisions should understand when and how to declare a conflict.
What should be included in a conflict of interest policy?
A practical policy should be clear enough for people to follow.
It does not need to be long or overly legalistic. It should explain the process in plain English.
Key sections may include the following.
Purpose of the policy
The policy should explain why it exists.
For example, the purpose may be to:
- support transparent decision-making
- help people identify and declare conflicts
- protect the organisation’s reputation
- support compliance with governance duties
- make sure decisions are made in the organisation’s best interests
Definition of a conflict of interest
The policy should define conflicts in simple terms.
It should make clear that conflicts can be actual, potential or perceived, and financial or non-financial.
It should also explain that personal interests may include the interests of family members, friends, employers, businesses, related organisations or other roles a person holds.
Duty to disclose
The policy should state that people covered by the policy must disclose conflicts as soon as they become aware of them.
Disclosure should not be delayed until a final decision is about to be made.
Early disclosure gives the board time to manage the conflict properly.
How conflicts are declared
The policy should explain how conflicts are declared.
This may include:
- annual conflict declarations
- a standing agenda item at each board meeting
- written declaration forms
- verbal declaration during a meeting
- declaration to the Chair, Secretary or governance contact between meetings
Many boards include “conflicts of interest” as a standing item near the start of every agenda.
How conflicts are managed
The policy should explain how the board decides what to do once a conflict is declared.
Possible actions may include:
- recording the conflict and allowing the person to remain in the discussion
- allowing the person to provide factual information but not participate in debate
- asking the person to leave the room for discussion
- excluding the person from voting
- excluding the person from receiving certain papers
- appointing an independent person to review the matter
- using a competitive process, such as quotes or tendering
- deciding not to proceed with the conflicted arrangement
The right response depends on the seriousness of the conflict and the decision being made.
Record keeping
The policy should explain how conflicts will be recorded.
This usually involves:
- recording the conflict in the meeting minutes
- updating the conflict of interest register
- noting how the conflict was managed
- recording whether the person left the meeting or abstained from voting
- recording the board’s final decision
Good records show that the conflict was handled properly.
What is a conflict of interest register?
A conflict of interest register is a central record of declared conflicts.
It helps the board keep track of conflicts over time rather than relying on memory or meeting minutes alone.
A register may include:
- name of the person declaring the conflict
- their role
- date the conflict was declared
- description of the conflict
- whether it is actual, potential or perceived
- whether it is financial or non-financial
- how the conflict will be managed
- date reviewed or resolved
- notes of related board decisions
The register should be reviewed regularly and updated when circumstances change.
For example, a board member may declare that they work for a potential funder. If they later leave that job, the register should be updated.
How boards should identify conflicts
Conflicts are easier to manage when boards identify them early.
Practical ways to identify conflicts include:
- asking new board members to complete a declaration form
- asking for annual updates from all Responsible People
- including conflicts of interest as a standing agenda item
- asking about conflicts before major decisions
- reviewing conflicts when considering contracts, recruitment, funding or partnerships
- encouraging people to declare if they are unsure
A useful test is to ask:
“Could someone reasonably think this interest or relationship might affect the decision?”
If the answer is yes, the conflict should be declared.
It is usually better to declare a possible conflict and decide it is low risk than to stay silent and create doubt later.
How boards should manage conflicts during meetings
Meetings are where many conflicts need to be handled in practice.
A simple process may look like this:
- The Chair asks for conflicts at the start of the meeting.
- A board member declares a conflict related to an agenda item.
- The board decides how the conflict will be managed.
- The decision is recorded in the minutes.
- When the agenda item comes up, the agreed process is followed.
- The conflict register is updated after the meeting.
For a low-risk conflict, it may be enough to record the conflict and allow the person to stay.
For a serious conflict, the person may need to leave the room while the board discusses and votes.
The Chair has an important role in making this process calm and normal. Declaring a conflict should not feel like an accusation. It should feel like part of responsible governance.
Practical examples of conflicts of interest
Examples can help boards understand what should be declared.
A board member owns a consulting business. The organisation is considering hiring that business to provide training.
This is a financial conflict. The board member could personally benefit from the decision.
The conflict should be declared. The board may decide that the board member should not receive the tender documents, participate in discussion or vote on the decision. The board may also decide to seek competing quotes.
A committee member’s adult child applies for a paid role with the organisation.
This creates at least a perceived conflict, and possibly an actual conflict if the committee member is involved in recruitment.
The committee member should declare the conflict and should not participate in recruitment discussions or decisions.
A board member also uses one of the organisation’s services. The board is discussing changes to service fees.
This may be a conflict because the decision could personally affect the board member.
The board should consider whether the person can participate in discussion, whether they should abstain from voting, and how the conflict should be recorded.
A Responsible Person sits on the board of two organisations that may apply for the same funding.
This could create a conflict between duties owed to each organisation.
The person should declare the conflict to both boards and follow any agreed process for managing funding discussions or confidential information.
The board is considering a contract with a business owned by a close friend of the Chair.
Even if the Chair receives no financial benefit, others may reasonably perceive a conflict.
The Chair should declare the relationship. Depending on the circumstances, another board member may need to lead the discussion and decision.
A manager approves reimbursement for expenses incurred by their partner, who also volunteers with the organisation.
This creates a conflict because the manager is approving a payment connected to a personal relationship.
The reimbursement should be reviewed by someone independent.
Common mistakes with conflicts of interest
Most conflict problems occur because people avoid awkward conversations or assume everyone already knows the situation.
A conflict is not automatically misconduct. It is a situation that needs to be managed.
If the board treats every declaration as a scandal, people may become reluctant to disclose conflicts. A mature board handles declarations calmly and consistently.
Some people only declare conflicts when there is a direct financial benefit.
Perceived conflicts also matter. If an independent person could reasonably question the decision, the situation should be declared.
Simply writing a conflict in the minutes is not always enough.
The board should also record how the conflict was managed and whether the person took part in discussion or voting.
A person may leave the room for the formal vote but still influence the decision beforehand through informal conversations, emails or background discussions.
If the conflict is serious, the person may need to be excluded from all parts of the decision-making process.
A conflict of interest register is only useful if it is kept current.
Registers should be reviewed at least annually and updated when people’s roles, relationships or interests change.
Policies should apply consistently, including to long-serving board members, founders, Chairs, Treasurers and senior staff.
Trust in the process weakens when some people are treated differently.
A practical conflict of interest checklist
Boards can use this checklist to review whether conflicts are being handled well.
Policy and process:
- Do we have a written conflict of interest policy?
- Does it explain actual, potential and perceived conflicts?
- Does it cover financial and non-financial conflicts?
- Does it explain who the policy applies to?
- Does it say how conflicts should be declared?
- Does it explain how conflicts will be managed?
Declarations:
- Do new board members complete a declaration?
- Are declarations reviewed annually?
- Is conflict of interest a standing board agenda item?
- Are conflicts declared before relevant decisions?
- Are people encouraged to declare if unsure?
Records:
- Do we maintain a conflict of interest register?
- Are conflicts recorded in meeting minutes?
- Do minutes explain how the conflict was managed?
- Do minutes record whether the person left the room or abstained from voting?
- Is the register reviewed and updated regularly?
Governance culture:
- Are conflicts handled calmly and consistently?
- Does the Chair lead the process well?
- Do board members understand that conflicts are not always wrong?
- Are serious conflicts managed before discussion and voting?
- Would the board be comfortable explaining its process to members, funders or the public?
How conflict management connects to financial governance
Conflicts of interest often arise around financial decisions.
For example, conflicts may relate to:
- supplier contracts
- consulting arrangements
- employment decisions
- grant funding
- partnership agreements
- property or lease decisions
- reimbursements
- donations with conditions
- related-party transactions
This is why conflict of interest processes should connect with financial controls.
A financial delegations policy may say who can approve spending. But if that person has a conflict, they should not simply approve the decision because it falls within their limit.
Good governance means financial decisions are both properly authorised and free from unmanaged conflicts. This also connects with internal controls for charities, because clear approval processes and independent checks help reduce the risk of poor or conflicted decisions.
How to make conflict declarations feel normal
Boards can make conflict declarations easier by treating them as routine governance practice.
Practical steps include:
- including conflicts of interest on every agenda
- asking all board members to update declarations annually
- using a simple register rather than an overly formal process
- explaining conflicts during board induction
- encouraging early disclosure
- thanking people for declaring conflicts
- recording decisions clearly and respectfully
The tone matters. If conflicts are handled respectfully, people are more likely to declare them early.
A good board does not ask, “How can we avoid talking about this?”
It asks, “How can we manage this transparently and protect the decision?”
When should a conflict of interest policy be reviewed?
A conflict of interest policy should be reviewed regularly, and whenever the organisation’s circumstances change.
A review may be needed when:
- new board members are appointed
- the organisation grows or changes structure
- new programs or funding arrangements are introduced
- the organisation enters more partnerships
- procurement or contracting activity increases
- a conflict has been difficult to manage
- an audit, review or governance assessment identifies a gap
- regulator guidance changes
At a minimum, many organisations review governance policies every one to two years. The board should also check whether the policy is being used in practice, not just whether it exists.
For organisations reviewing broader governance systems, conflict management should sit alongside NFP compliance and reporting, board financial reporting, approval limits and financial controls. These areas work together to support better decisions and stronger accountability.
Final thoughts
A conflict of interest policy helps not-for-profit boards handle conflicts clearly, calmly and transparently.
Conflicts are common, especially in community-based organisations where people often have strong relationships, overlapping roles and deep personal commitment to the cause. The presence of a conflict does not automatically mean something is wrong.
What matters is how the conflict is handled.
Boards should identify conflicts early, encourage declarations, keep an up-to-date conflict of interest register, record decisions properly and manage each situation in a way that protects the organisation’s best interests.
When conflicts are managed well, they do not need to undermine trust. They can show that the organisation takes governance seriously.
If your board wants to strengthen its conflict of interest processes, financial controls or governance reporting, Hopscotch can help you put practical systems in place so decisions are clearer, better documented and easier to defend.
