A Practical Guide to Writing Your Charity’s Conflict of Interests Policy

Introduction

For any charity, effectively managing a conflict of interests is a critical component of good governance and is essential for maintaining public trust. These situations, where personal interests could influence professional duties, are common and, if not handled properly, can risk a charity’s reputation and integrity.

Developing a robust conflict of interest policy is therefore a fundamental step, providing a clear framework to identify, disclose, and manage these situations transparently. This guide offers practical steps for creating an effective policy that protects your organisation and helps ensure compliance with requirements from bodies like the Australian Charities and Not-for-profits Commission (ACNC).

Why Your Charity Needs a Conflict of Interest Policy

Protecting Your Charity’s Reputation & Public Trust

The trust a charity receives from donors, volunteers, and the community is fundamental to its success. A conflict of interest policy is crucial for protecting your organisation’s integrity and reputation. When conflicts are not managed properly, they can create a perception of impropriety that erodes public confidence.

This damage can directly impact your charity in several ways:

• Reduced donations and financial support
• Diminished volunteer engagement
• Weakened community partnerships
• Potential damage to long-term sustainability

Having a clear and robust conflict of interest policy demonstrates a commitment to transparency and ethical conduct. This commitment helps sustain the trust that is essential for your charity to achieve its mission effectively.

Complying with ACNC Governance Standard 5

Registered charities in Australia must comply with the governance standards set by the ACNC. A key requirement is found in Governance Standard 5, which outlines the duties of a charity’s ‘Responsible People,’ such as board or committee members.

This standard requires that Responsible People disclose and manage any actual or perceived material conflicts of interest. A formal conflict of interest policy provides the necessary framework to meet these obligations, ensuring that:

• All Responsible People are aware of their duty to disclose any conflicts
• A clear process exists to manage conflicts of interest effectively
• The charity avoids governance deficiencies that could lead to ACNC investigation

In serious cases, failure to manage conflicts of interest properly could even result in the revocation of your charity’s status. Therefore, implementing a comprehensive policy is not just good practice—it’s essential for regulatory compliance.

Essential Elements of Your Charity’s Conflict of Interest Policy

Defining the Policy’s Purpose & Scope

The purpose of a conflict of interest policy is to provide a clear framework for protecting the integrity of your charity and managing its risks. It should articulate the policy’s main goals, ensuring that all decisions are made in the organisation’s best interests. In doing so, it sets the tone for the entire document and communicates a firm commitment to ethical practices.

Moreover, your policy must clearly define its scope by stating exactly who it applies to, including:

• Board members (at a minimum)
• Managers
• Employees
• Regular volunteers

By naming each group, you ensure that everyone involved with the charity is held to the same high standard.

A Clear Definition of a Conflict of Interest

A crucial element of your policy is a precise definition of what constitutes a conflict of interest. This occurs when a person’s private interests clash with their duty to act in the charity’s best interests. These personal interests can be financial or non-financial and may involve family, friends, or other organisations in which the individual is involved.

To ensure everyone understands what needs to be disclosed, the policy should define three distinct types of conflicts:

Type of Conflict	Definition	Example
Actual Conflict	A person is currently being influenced by a competing interest.	A board member faces an actual conflict if the charity is deciding to award a contract to a company they own.
Potential Conflict	A person could be influenced by a conflicting interest in the future.	A board member sits on the board of another charity that may apply for the same grant down the line.
Perceived Conflict	It could appear to others that a person might be influenced by a personal interest, even if they believe they can remain impartial.	A board member’s sibling is employed by a company bidding for a service contract with the charity.

By clearly distinguishing these categories, the policy makes it easier for everyone to recognise and disclose relevant conflicts.

Outlining Roles & Responsibilities for Managing Conflicts

Your policy must clearly outline the roles and responsibilities for managing conflicts of interest so that everyone understands what is expected of them. Primarily, the board is responsible for establishing a system to identify, disclose, and manage any conflicts that arise.

Key duties of the board include:

• Identifying and recording potential, actual, or perceived conflicts
• Reviewing and approving disclosures
• Monitoring ongoing compliance with the policy
• Conducting an annual review to ensure continued effectiveness

In addition, board members must be aware of their obligations under the ACNC Governance Standard 5, which requires them to disclose any actual or perceived material conflicts of interest.

Stating the Consequences of Breaching the Policy

To reinforce its importance, the policy should clearly state the consequences of non-compliance. This not only acts as a deterrent but also demonstrates the charity’s commitment to upholding ethical standards.

The policy should explain that if there is reason to believe someone has failed to comply, the board will:

• Investigate the circumstances surrounding the suspected breach
• Take disciplinary action if a conflict has not been properly disclosed

Consequences may range in severity and can include terminating the individual’s relationship with the charity. Including these measures provides a transparent framework for maintaining the organisation’s integrity.

Key Procedures to Include in Your Policy

A Process for Identifying & Disclosing a Conflict of Interest

Your conflict of interest policy must detail a clear procedure for identifying and disclosing any conflicts. This process should encourage individuals to regularly review their business relationships, financial interests, and personal connections to spot any actual, potential, or perceived conflicts of interest.

It is important to remember that some stakeholders, such as government bodies, are concerned with perceived conflicts just as much as actual ones. Once a potential conflict of interest is identified, the individual has a responsibility to disclose it promptly and transparently.

The policy should specify how and to whom disclosures are made. As soon as a person becomes aware they have an interest in a decision or contract being considered, they should:

• Disclose their interest to the board or the relevant person outlined in the policy
• Clearly explain the nature and extent of the conflict

A transparent disclosure process is fundamental to managing conflicts of interest effectively and helps maintain credibility and trust with all stakeholders of the charity.

Maintaining a Register of Interests

A key internal control for your charity is the maintenance of a register of interests. Once a conflict of interest has been identified and disclosed, it must be formally recorded in this register. This document serves as a central record for tracking and managing all disclosed conflicts.

The register of interests is a critical tool for ensuring transparency and demonstrating good governance. For each disclosure, the register must record specific details, including:

• The nature and extent of the conflict of interest
• The date the disclosure was made
• The steps taken by the board to manage the conflict

Many charities also maintain a separate register of related party transactions. If a transaction with a related party creates a conflict of interest, it should be recorded in the register of interests as well.

Deciding on Actions to Manage a Disclosed Conflict

After a conflict of interest has been disclosed, the board must decide on the appropriate actions to manage it. The conflicted individual must not be part of this decision-making process. Instead, the board, excluding the conflicted member, must determine the best course of action to protect the charity’s interests.

The board will need to decide whether the conflicted member should be permitted to:

• Vote on the matter
• Participate in any debate
• Be present in the room during discussions and voting

At a minimum, a conflicted person must not vote on the relevant issue. In more serious cases, the board may require the individual to be absent from the room entirely to ensure impartiality. The final decision and the outcome of any vote must be recorded in the meeting minutes and the register of interests.

How to Implement & Maintain Your Conflict of Interest Policy

The Importance of Regular Training & Awareness

For a conflict of interest policy to be effective, it must be more than just a document; it needs to be embedded in your charity’s culture. Regular training and awareness sessions are essential for several reasons:

• They ensure all board members, managers, and staff understand the policy and its importance
• They help foster a culture of disclosure where everyone feels equipped to identify potential conflicts
• They reinforce the seriousness of managing conflicts of interest
• They demonstrate the charity’s commitment to upholding ethical standards

Effective training ensures that everyone in the organisation understands how to apply the policy in their specific roles. By promoting awareness, you equip your team to handle any conflict of interests responsibly, ultimately protecting the organisation’s integrity.

Scheduling Regular Policy Reviews & Updates

A conflict of interest policy should be a living document that adapts to your charity’s changing circumstances. It is crucial to schedule regular reviews to ensure the policy remains:

• Relevant to your current operations
• Effective in addressing potential conflicts
• Compliant with current legislation

The board is typically responsible for conducting these reviews, which should occur at least on an annual basis. This proactive approach ensures that your procedures for managing conflicts of interest remain robust and fit for purpose.

Regular reviews also allow your charity to update the policy in response to significant changes in its operations, business relationships, or industry standards. Additionally, this demonstrates a commitment to good governance to stakeholders and regulatory bodies like the ACNC.

Conclusion

Creating a sturdy conflict of interest policy is a critical governance step for any charity, essential for protecting its reputation and ensuring compliance with the ACNC. An effective policy clearly defines what constitutes a conflict, establishes procedures for disclosure and management, and is consistently maintained through regular training and reviews.

If your charity needs assistance developing or refining its conflict of interest policy, contact LawBridge for tailored legal support. Our expert team specialises in not-for-profit law and can provide the trusted guidance needed to create a comprehensive policy that safeguards your organisation’s integrity and ensures you effectively manage conflicts of interest.

Frequently Asked Questions