Key points:
- The ACNC defines a conflict of interest as when someone’s personal interests conflict with their ability to act in the best interests of the charity they are a part of.
- Conflicts of interest can be divided into three categories - actual, potential and perceived.
- Small charities, particularly charities operating in small towns, can be more likely to encounter conflicts of interest.
- Conflicts of interest are not an issue if they are appropriately managed. Good planning, solid policies and an attitude of transparency and disclosure are important tools in managing conflicts of interest.
A conflict of interest is a situation where someone’s personal interests conflict with their ability to act in the best interests of the charity they are a part of.
‘Personal interests’ do not need to be an individual’s own interests. They can also be the interests of the person's family, friends or other organisations they are connected to. Conflicts of interest can also arise when someone has a duty to two different charities.
Small charities, particularly those operating in smaller towns or in rural and regional areas, can be especially susceptible to conflicts of interest.
In small towns, or rural and regional areas, individuals might be part of a number of groups, organisations or businesses. This can mean a greater potential for cross-overs and conflicts between their many responsibilities.
Addressing conflicts of interest is something that charities of all sizes must do. Just because you are a small charity, it doesn't mean that you can ignore or overlook the issue.
Conflicts of interest can be divided into three categories:
- Actual is when you are actually being influenced by a conflicting interest.
- For example, your charity is considering whether to give a grant to a kindergarten that your child attends. In this situation, you cannot impartially take part in the decision-making process.
- Potential is when you could be influenced by a conflicting interest.
- For example, you apply for a grant as an employee of one charity and a board member of another.
- Perceived is when you appear to be influenced by a conflicting interest.
- For example, you are in the position to make a decision on quotes to provide a service to your charity, and one of the potential service providers is a company run by a close relative. While you believe you can remain impartial, from the outside it might look like a decision is in your own interest.
Not properly dealing with conflicts of interest can create a serious reputational risk for a charity, as well as numerous threats to good governance.
A conflicts of interest policy and register (refer to the section below) will often outline what a charity defines as a conflict of interest. The ACNC definition is also a great basis to identify conflicts.
In addition to a policy and register, there are also a couple of other basic ways that small charities and their board can size up whether something may constitute a conflict of interest.
- The ‘reasonable person test’: Ask whether a reasonable person believe that you might be influenced by your personal interests when making decisions on behalf of the charity?
- Step outside your organisation: If you feel there is no conflict of interest, but an outsider might see it as an issue, the situation needs to be managed.
As part of their responsibilities under ACNC Governance Standard 5, all Responsible People (board or committee members) must disclose conflicts of interest - be they actual, potential or perceived.
Disclosure can be achieved through the development and implementation of a conflict of interest policy and register – two things any small charity can easily establish.
The policy should clearly address conflicts of interest, including declarations and disclosures. The ACNC has a conflict of interest policy template which your charity can adapt for its own use.
The register is the place where all conflicts are formally noted and placed on the record.
Anything that someone in your charity with decision-making ability or responsibility has an interest in can be recorded or noted in that register of interests for everyone to see.
Once it is on the register, the interest is declared and is out in the open and can be addressed or avoided.
Your small charity’s culture and attitude plays a key role too.
You need to ensure your charity encourages and welcomes disclosure, and welcomes and promotes transparency and openness. Your charity should have an attitude that acknowledges that conflicts of interest are a common occurrence, but only become a problem when they improperly influence behaviour and are not declared and addressed.
These attitudes should extend to your charity’s regular board or committee meetings by:
- allowing ample opportunity on the agenda for Responsible People to declare any conflicts of interest in items to be discussed
- following the charity’s rules and policies for dealing with a conflict
- taking careful minutes at meetings.
The ACNC has a sample meeting agenda and sample minutes template available for your charity to download and adapt. Our webinar on conflicts of interest offers further guidance.