Managing conflicts of interest in a charity

Conflicts of interest affect charities of all types and sizes and it is important that they are identified and managed effectively by trustees.

What are conflicts of interest?

A conflict of interest is any situation in which a trustee's personal interests or loyalties could, or could be seen to, prevent the trustee from making a decision only in the best interests of the charity.

There are two types of conflicts for trustees to be aware of:

• Financial conflicts
  The trustee benefits financially from a decision they have made. Examples include payment for services or the award of a contract to another organisation in which a trustee has an interest, employ a trustee for a particular job role within the charity, sell, loan, or lease charity assets to a trustee or buy, borrow, or lease from a trustee
• Loyalty conflicts
  Loyalty conflicts might cause trustees to take decisions that are not in the charity’s best interest. For example, the decision may involve the trustee’s employer or another charity where they are also a trustee, and the decision is in direct conflict between the two. Or the decision will also affect relatives or friends of the trustee.

Why do trustees need to manage conflicts of interest?

It is important for trustees to identify as early as possible whether there is a conflict and if so, take any necessary action. All trustees have a legal duty to act only in the best interests of their charity and any decisions made by them should only be to further the charitable purpose of the charity.

Having clear policies and governance in place to identify and declare conflicts of interest is particularly important to avoid trustees making decisions that are not in the best interests of the charity – those decisions could be invalid as well as damage the charity’s reputation.

How should trustees manage conflicts of interest?

Conflicts of interest must be declared to other trustees. Trustees need to keep and regularly update a register of interests, and have a standard agenda item at the start of meetings to identify and declare any conflicts of interest. Trustees should also set up a conflicts of interest policy so all trustees are aware of when conflicts of interest commonly happen, how to declare them and what the trustees’ responsibilities are.

Trustees must take action to stop conflicts from affecting their decisions. They must either manage the conflict, or if it is a serious conflict, they should consider removing it by changing plans or asking a conflicted trustee to resign.

If the conflict involves payments or benefits for trustees, or connected organisations or people, it’s important to check that these are allowed by the charity’s governing document, the law and the Charity Commission or court. If there isn’t guidance available on managing the conflict, trustees need to set some rules as they are legally responsible for managing the conflict by following the right process. As a minimum the rules require that conflicted trustees leave relevant discussions, do not participate in the decision or vote and are not counted in the quorum.

Record conflicts of interest

Trustees should keep a written record detailing what the conflict was, who or what it affected, when it was declared and how it was managed. This will help demonstrate that trustees have acted properly.

The Charity Commission has published useful guidance on managing conflicts of interest.

If you’re looking for charity accounting advice, then get in touch with our expert team who will be happy to help.