Question: Conflict of Interest Policy in plain English

I've included the "Conflict of Interest Policy" suggested by PTO Today in our bylaws. It is really very long and full of legal terms. Can anyone explain this in plain English? I will need to explain the policy at our meeting and feel ill-prepared. (I'm leaving the wording as suggested, but doubt anyone clearly will understand it)

Asked by ete2012

Answers:

Community Advice

mum24kids writes:
In a nutshell, the conflict of interest policy is there to protect against situations where someone's personal stuff can conflict with the business interests of the parent group. So--here's a real life example for you. A few years ago, we had an officer whose family owned a spirit wear company, and that officer happened to have spirit wear as one of their responsibilities.

Having the conflict of interest policy didn't mean that we couldn't buy the spirit wear from them. But if would have looked really bad if we just gave them the contract. The policy gives you a framework to deal with the potential conflict. We got three or four different proposals, and the officer who owned the spirit wear company recused himself from the decision making process. And we documented the whole process we went through to select the vendor. (And yes, ultimately we did give the contract to the officer's family business.)

We don't have the whole policy in our bylaws. We print it out and make all the officers sign it every year, along with changes of bank signatures and any other paperwork that gets done in the officer transition.

If you get big enough so that you have to file an IRS Form 990, you have to answer questions on the tax return related to how you administer the policy and what kinds of transactions you had with officers and their family members. On the shorter returns, there aren't really any questions related to it.

Advice from PTO Today

Craig writes:
Great answer by mum24kids, below, explaining the gist of it and how it applies to PTOs. A few other details: The policy requires you to disclose in the minutes any time a conflict of interest is declared, and it requires you to review the policy from time to time. There is also a portion addressing paid board members, which of course doesn't apply to PTOs.

This policy was written and recommended by the IRS, so it's quite broad in that it can apply to 501c3 organizations with paid staff, etc. We recommend adopting the whole thing because we know the IRS will accept it. But it is possible to craft one to fit your needs more specifically. The downside is that your application may be held up if the IRS feels it's not complete enough.