CONFLICT OF INTEREST

A conflict between an individual self-interest and the public good. Example: an organization that operates a day treatment program awards a food services contract to a local restaurant that is owned by a governing body member. From a legal standpoint, "conflict of interest" is a term used in connection with fiduciaries and their relationship to matters of private interest or gain to them. When used to suggest disqualification of a fiduciary from performing his or her sworn duty, the term refers to a clash between public interest and private pecuniary interest of the concerned individual.		  
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  POLICY

A written statement of principles, values, or intent that provides a basis for consistent decision making and guides the actions of staff, management, and board of trustees. A policy is intentionally broad in its language and application. The following is an example of an anti-discrimination policy:

"[Organization Name] shall not discriminate on the basis of race, color, religion (creed), gender, age, national origin (ancestry), disability, marital status, sexual orientation, or military status, in any of its activities or operations. These activities include, but are not limited to, hiring and firing of staff, selection of volunteers, selection of vendors, and provision of services."

In contrast, a procedure is a detailed, step-by-step description of a process. It tells the reader how to do something. Generally, policies are implemented through procedures. For example, the above anti-discrimination policy would require a detailed grievance procedure in order to operationalize it within an organization.

The governing body has the fiduciary responsibility for setting organizational policy. Therefore, policies must be approved and periodically reviewed by the organization's governing body. However, the governing body typically delegates (via policy) the responsibility for policy development to management. In owner-operated for-profit companies, the owner can act as the company's governing body, depending on the company's corporate structure.

In a public agency the responsibility for setting and reviewing policies may belong to the agency's management team, elected officials, another governmental agency, or as is often the case, a combination of the above.

  
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  PROCEDURES

Written instructions that outline the steps for performing a task(s) or operationalizing an administrative or service delivery process. A procedure can be written as a step-by-step set of instructions or as a narrative description of a process. A procedure tells someone how to do something not just what to do.

Unlike policies, procedures do not need to be approved or reviewed by the governing body, and need not be associated with a specific policy. For example, whereas a broad anti-discrimination policy requires grievance or other procedures in order to be operationalized within an organization, assessment procedures do not require a governing body approved assessment policy.

Note: Procedures are sometimes referred to as administrative policies.

  
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  GOVERNING BODY

A person or persons with the legal authority and responsibility to set policy and oversee the operations of an organization. Generally, the governing body is a group, such as a board of directors or board of trustees. While the exact responsibilities of the governing body depend on the nature and character of the organization, the governing body has minimum fiduciary responsibilities to the organization set by statute, regulation, and case law, and typically assume responsibilities for long term planning, risk management, and evaluation and effectiveness of management.		  
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  ADVISORY GROUP

A group of individuals selected by an organization's governing body or management who possess unique skills and/or knowledge and whose role is to make recommendations, provide information, and/or share input from stakeholders. Advisory groups do not have formal governance authority or responsibilities. Advisory groups can be ongoing or ad hoc.		  
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  MANAGEMENT

See ADMINISTRATION		  
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  PERSONNEL

The body of employees and/or volunteers that carries out the organization's tasks under the organization's administration and/or supervision. This definition does not include foster parents who are specifically referenced in relevant standards		  
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  PRACTICE

Established actions or ways of proceeding in the regular performance of organizational duties. Policies and procedures often guide practice.		  
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  CONTRACT

A formal written agreement between two or more parties that specifies the services, space, or products to be provided in exchange for some form of compensation. Also known as "purchase of service arrangement."		  
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  SERVICE RECIPIENT

The individuals, groups, organizations, or communities that use, receive, or benefit from programs and services. Service recipients can include consumers, patients, family members, legal guardians, advocates, public/private organizations, employers, and purchasers. All are regarded as significant stakeholders served in a variety of agencies and practice settings.		  
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  COMMUNITY

A specific group of people living in the same locality and who may share a common culture, values, and norms. Communities can also be defined by race, religion, ethnicity, age, occupation, political status, tribal affiliation, interest in particular problems or outcomes, or other common bonds. The term "community" encompasses worksites, schools, tribes, residential neighborhoods, business districts, recreational areas, and health and human service sites.		  
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  CONSULTANT

A person who provides specialized or technical advice or services to an organization for specific purposes on a contractual or fee basis, or who provides such services as a volunteer with an agreement to provide services on a pro bono basis.		  
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  SERVICE

One or more organization-operated programs or activities that have a common general objective and deploy the organization's material and human resources in a planned and systematic manner. An organization that publicly promotes or identifies itself in writing as offering a service, is licensed to deliver a service, assigns personnel and/or space to a service, or allocates financial resources to a service is considered to offer that service.		  
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  FOR-PROFIT ORGANIZATION

An organization that is owned or staffed by professionals and intended to make a financial profit by offering a specific service or set of services. These organizations may provide services similar to those offered by not-for-profit organizations, except that the charges to the consumers may be higher and/or established on bases different than the rate-setting criteria employed by not-for-profit organizations.		  
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  ASSESSMENT

An evaluation, which utilizes professional expertise and skills in the collection and analysis of data to understand and describe the nature of service needs of an individual, family, or group. Assessment, as in needs assessment, is also used to determine priorities of program planning and service development for the organization as a whole. See also DIAGNOSIS.		  
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Ethical Practice
  
Private Org Public Agency  

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.
related HR 1.03,  RPM 2.01,  RPM 2.04
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.

ETH 2.01

 

A conflict of interest policy is tailored to the organization’s specific needs and characteristics, and:

  1. defines conflict of interest;
  2. identifies groups of individuals within the organization covered by the policy;
  3. addresses transactions between governing body members, advisory group members, owners, staff, and the organization;
  4. addresses policy enforcement;
  5. provides a framework for evaluating situations that may constitute a conflict; and
  6. invests management with developing procedures that facilitate disclosure of information to prevent and manage potential and apparent conflicts of interest.

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.

ETH 2.02

 
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.

ETH 2.03

 

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:

  1. disclose this information; and
  2. do not participate in any discussion or vote taken with respect to such interests.
Note: Element (b) does not apply to owners in private, for-profit organizations.

ETH 2.04

 
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.
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PURPOSE: The organization earns and sustains the public trust through honest, truthful, and responsible transactions, partnerships, and relationships with individuals, communities, providers, businesses, donors, and government entities.
 
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