A charity's Responsible People (board or committee members, or trustees) make an enormous contribution to the organisation's work, and to their community. They bring their experience, expertise and commitment to governing their charity.
But there may be times when someone’s personal interest or interests can come into conflict with the responsibility to act in the charity’s best interests. This situation is known as a conflict of interest.
Conflicts of interest are common and do not have to be a serious problem. If they are managed appropriately through good governance, processes and policies, these conflicts can be identified and resolved, or even prevented.
However, if a conflict of interest isn’t managed properly, it may damage a charity’s reputation and, in serious cases, even breach the law.
Who this guide is for
This guide has been developed to help explain what conflicts of interest are and how they can be managed. The guidance is aimed at Responsible People, but may also be useful to charity employees or volunteers.
The charity sector in Australia has built a reputation for integrity, ethical behaviour and trust. Indeed, charities are among the most trusted organisations in our community. This reputation inspires the confidence of donors and volunteers, and is essential to the work of the charity sector.
Having a robust process in place to respond to conflicts of interest helps to ensure that this good reputation can be sustained.
Under ACNC Governance Standard 5, Responsible People have various duties, some of which are linked to disclosing and managing conflicts of interest.
In determining how conflicts of interest should be managed, Responsible People need to refer to the ACNC Governance Standards – particularly Governance Standard 5 – as well as follow any requirements in their charity's governing document and comply with any relevant legislation that governs their charity.
What are conflicts of interest
Like all people, Responsible People have various family, social and business relationships, which are often important factors in the establishment and growth of a charity. However, these relationships can sometimes cause conflicts of interest.
A conflict of interest occurs when your personal interests conflict with your responsibility to act in the best interests of your charity.
The term 'personal interests' refers to interests more broad than just those of an individual. It may also refer to the interests of someone’s family, friends, or other organisations they are involved with.
It can also be a conflict between an individual’s duty to their charity and another duty they have, such as a duty to another charity.
A conflict of interest might mean your duty to act in the best interest of the charity is undermined by another interest you have, making it difficult to ensure you are meeting your duties. This can cause a problem if you make a decision based on, or affected by, these external influences, rather than in the best interests of the charity.
And while you may think there is no danger of making a decision that puts your own personal interests ahead of the charity’s, it does not mean any conflict of interest should be disregarded. All conflicts of interest must be taken seriously.
A good way to think about whether you have a conflict of interest is to ask:
Would a reasonable person (properly informed about the nature of your personal interests) believe you might be influenced by your personal interests when making decisions on behalf of the charity?
Types of conflicts of interest
There are three types of conflicts of interest: actual, potential, and perceived.
- Actual: where you are being influenced by a conflicting interest
For example, your charity is considering whether to give a grant to a kindergarten that your child attends. You face an actual conflict of interest that could influence your decision.
- Potential: where you could be influenced by a conflicting interest
For example, you hold a position at two charities and may, at some point, apply for the same grant as an employee at one charity and a Responsible Person at the other. This situation is one where you could be influenced by a conflict of interest.
- Perceived: where you could appear to be influenced by a conflicting interest
For example, you are reviewing quotes for a service and one of the potential providers is your sibling's employer. While you believe you can make an impartial decision in the best interests of the charity, it could be perceived as being made in your own interest.
The importance of managing conflicts appropriately
The improper or inappropriate handling of any conflicts of interest can cause problems for your charity.
Your charity’s reputation is one of its most valuable assets. Many charities rely on their good reputation to attract donations, funding and clients.
Failing to manage conflicts of interest can damage your charity’s reputation, and as a Responsible Person, you have a duty to ensure poorly managed conflicts of interest do not compromise your charity’s reputation.
Once lost, reputation can be difficult to restore. Damage to your charity's reputation can have a negative impact on:
- fundraising and donations, including grants
- recruitment and retention of staff and volunteers
- public trust and confidence in your charity.
Responding to bad publicity can also be expensive. Your charity may need to devote time, energy and resources to defending its reputation, rather than pursuing its charitable purposes.
Time and effort spent on effectively managing conflicts of interest puts your charity in a good position to protect its reputation and ensure that its precious resources are wisely and productively spent.
Good governance is a central part of ensuring that your charity is effectively working towards achieving its purpose, and meeting its obligations under the law.
Failing to manage conflicts of interest affects your charity’s governance in a variety of ways.
Failing in your duty to act in your charity's best interests
A charity’s Responsible People have duties under Governance Standard 5. These duties include acting with reasonable care and diligence, acting honestly and fairly in the best interests of the charity and for its charitable purposes, and disclosing conflicts of interest.
The failure to manage conflicts of interest may indicate that some or all of the charity’s Responsible People are not acting in the charity’s best interests. This can impair the ability of the Responsible People to make decisions that benefit the charity, and ultimately undermine the organisation’s long-term sustainability.
Risking transparency and accountability
Charities demonstrate 'transparency' by being open and honest about their work, including their decisions, operations and transactions – and communicating information about their work in a way that their audience can easily understand.
‘Accountability’ in this context relates to Responsible People being answerable to those with an interest in the charity – its staff, members, beneficiaries, funders and the general community.
You cannot have accountability without transparency.
The failure of a Responsible Person to disclose a conflict of interest that could influence their role in their charity’s decision making is a lack of transparency.
This in turn hampers accountability as it prevents interested stakeholders from being able to scrutinise the decision and hold the director accountable for it.
Appropriately identifying and managing conflicts of interest is essential in promoting accountability and transparency in your charity. Likewise, accountable and transparent decision-making processes can help you manage conflicts.
Negatively affecting the dynamic between Responsible People
A charity’s Responsible People need to be able to function effectively as a group, and this can be undermined if conflicts of interest are not managed.
Responsible People make decisions together to manage the charity’s affairs. If a conflict of interest has not been appropriately managed, the integrity and effectiveness of their decision-making process may be at risk.
Responsible People must be able to have impartial and open discussions, and be able to rely on each other to always act in the best interests of their charity.
The ACNC has investigated charities that have not adequately managed conflicts of interest, which in turn has seen charity Responsible People obtaining private benefits from the decisions they have made.
While these actions have not risen to the level of a fraud investigated by law enforcement agencies, it has indicated that the governance of the charity in question has been deficient, which in some instances has seen their charity status revoked.
Identifying conflicts of interest
An essential part of managing conflicts of interest effectively is knowing how to identify them.
To identify a conflict of interest, you need to understand:
- your charity’s charitable purpose,
- your personal interests, and
- your duties as a Responsible Person.
You should also be familiar with any situation where conflicts of interest may arise.
You must have a clear understanding of your charity’s purpose. Your charitable purpose is the reason for charity’s establishment and what it hopes to achieve.
By understanding your charity’s purposes, you can ensure you are working towards achieving them and making decisions in your charity’s best interests.
You need to be aware of your personal interests – as well as the interests of any other people connected to you – and understand how these interests could influence you.
As a general rule, you should be aware of:
- current and previous paid or volunteer work
- current and previous trusteeships
- whether you are a board member of any other organisation
- whether you own a business or a share in a business
- membership of other organisations you hold
- any similar interests of your family or friends.
This is not an exhaustive list and there may be other interests of which you should be aware. Your interests can also change with time.
If you think there is a chance that your interests may conflict with those of your charity (or may conflict at some point in the future), you should ensure these conflicts are recorded in a ‘register of interests’ as soon as you identify them.
Governance Standard 5 outlines the duties that Responsible People must know and follow.
These duties are to:
- act with reasonable care and diligence
- act honestly and fairly in the best interests of the charity and for its charitable purposes
- not misuse their position or information they gain as a Responsible Person
- disclose any actual or perceived conflict of interest
- ensure that the financial affairs of the charity are managed responsibly
- not allow the charity to operate while it's insolvent.
The duties most relevant to managing conflicts of interest are:
To act honestly and fairly in the best interests of the charity and for its charitable purposes
It can be difficult to make a decision in the best interest of your charity if that decision conflicts with your personal interests or those of your friends, family or other organisations you are involved with.
A failure to manage any conflicts of interest can easily result in a breach of this duty.
To not misuse your position or information gained as a Responsible People
Responsible People must not use their position to gain an advantage for themselves or someone else, or to act in a way that causes harm or detriment to their charity.
Through their role, Responsible People may have access to confidential information about their charity.
This sort of information is available to Responsible People to help them fulfil their duties.
However, they must ensure they are not using or sharing this type of information for personal benefit, or for any reasons other than working in the best interests of the charity.
Information is generally considered to be confidential if:
- it is not in the public domain, or the charity has agreed to keep it confidential
- its disclosure could be detrimental to the charity, or advantageous to others
- within your charity’s industry, it would usually be considered confidential or worthy of protection.
Confidential information may include:
- financial statements
- proposed future activities
- personal information regarding charity members, employees, volunteers, donors or beneficiaries
- details of existing and proposed service agreements, or even a proposed merger with another organisation
- the intention to apply for a government grant or request for tender
- the intention to donate some of the charity's funds to another charity.
These situations can be complicated if charities work together and share certain information or if someone acts as a Responsible Person with more than one charity.
Whether information should be treated as confidential will often depend on the situation or purpose for which that information is being disclosed. It may be that your charity’s governing document sets out the information that should be treated as confidential.
If you are ever in doubt about whether information can be disclosed, you should be open and transparent with the other Responsible People and consider what is best for your charity.
To disclose any actual or perceived conflicts of interest
Responsible People must disclose actual, potential or perceived conflicts of interest. Doing so generally means reporting them to your charity.
There are a number of ways you can do this, but it is prudent to ensure any conflicts of interest are recorded in writing. This is most often done by recording them in a register of interests.
If you aren’t sure whether something is worth disclosing, it is a good idea to be cautious and raise it with your fellow Responsible People. This will allow for a more impartial evaluation of whether an interest represents a potential conflict and will help if ever it becomes an issue in the future.
If a potential conflict of interest is raised or discussed at a meeting of your Responsible People, you should ask that this discussion and the conflict of interest that has been raised be recorded in the meeting minutes. you may wish to ask that this discussion be recorded in the meeting minutes.
There may be circumstances when you are required to disclose a conflict to your charity's members, such as if you are the sole Responsible Person, or if the other Responsible People share the same conflict.
There may also be times when you cannot disclose the interest to the charity’s Responsible People or members – for example, if you are the only Responsible Person and the sole member of the charity.
If you find yourself in this situation, or you are otherwise unsure of your obligations, contact the ACNC so we can discuss options with you.
There are a number of different situations in which conflicts of interest can arise, and it is possible for more than one situation to occur at a time.
Being aware of these situations can help you identify them and address them when required.
Direct financial interest
You may receive a direct financial benefit as a result of a decision or action made by your charity.
This may occur, for example, if your charity is deciding to pay you a fee for a service that you provide to the charity.
Indirect financial interest
You do not need to be the person directly benefitting from a charity decision for there to be a conflict of interest.
Your family or close friend, or another organisation in which you are involved, may stand to benefit financially as a result of a decision made by your charity.
This is known as an indirect financial benefit.
Non-financial or personal conflicts
Not all conflicts of interest are about money.
In some cases, your personal or religious opinions, values or beliefs may be in conflict with a proposed action or decision of your board.
There may also be conflicts that arise simply because you want to do a favour for a friend.
A proposed decision of your charity may result in your family or friends receiving a non-financial benefit they would otherwise not be entitled to receive.
Conflict of loyalties
Responsible People can be on the board of more than one charity at a time, and in some cases, they may work with charities in the same field or industry.
When this happens, they need to be able to identify situations where being involved in a decision for one charity may have an impact on the other charity.
It is important that, in addition to disclosing the relevant conflict, you are careful to always act in the best interests of the charity that you are making a decision for, not in the interests of any other organisations you may work with.
There can also be conflicting loyalties within the board. This can occur when one board member’s opinion holds a disproportionate amount of weight.
For example, if there are close friends or relatives on the board, there is a risk that decisions could be influenced by other board members, rather than decisions being made in the best interest of the charity.
There needs to be a clear distinction between the personal interests of those on the board and the business of the charity.
Preventing or minimising the impact of a conflict of interest
Once you have learnt to identify actual, potential or perceived conflicts, there are simple steps you can take towards preventing conflicts of interest from becoming a problem. They include:
- adopting a conflict of interests policy
- maintaining a register of interests
- creating and promoting a culture of disclosure
- managing any conflicts of interest appropriately.
Setting out how your charity will manage conflicts of interest in a policy makes clear the procedure your charity will use to address and respond to the issue. It also helps Responsible People fulfil the duties set out in Governance Standard 5.
A good conflict of interest policy should include:
- Policy scope: an outline of who the policy applies to. Generally, this will be your charity’s Responsible People at the very minimum, but could also apply to staff and volunteers.
- Definition: an explanation of what a conflict of interest is. This might include an outline of what actual, perceived and potential conflicts of interest might look like in your charity’s context.
- Disclosure policy: an outline of when a conflict should be disclosed. Consider if full disclosures should be made at the point of becoming a Responsible Person, with information then kept up-to-date through a register of interests.
- Disclosure procedure: ensure you have a clear procedure about how conflicts will be disclosed. It’s a good idea to disclose any conflicts in writing, but you will need to decide in what format, to whom they are disclosed and who needs to be notified of the disclosure.
- Confidentiality of disclosure: to support your board members to disclose their conflicts of interest, set out the level of confidentiality associated with any disclosure.
- Identifying failures to disclose: outline the procedure that occurs should a fellow Responsible People fail to disclose a conflict of interest.
- Consequences of failing to disclose: make clear the consequences of a failure to disclose a conflict of interest. This may range from a warning to more serious consequences, like having a Responsible Person stand down from their position.
You can use our template conflicts of interest policy. It should be used as a guide only and adapted to the needs and circumstances of your particular charity.
A register of interests is a document that records the relevant interests of your charity’s Responsible People and the steps taken, if any, to manage them.
It helps ensure any actual, potential or perceived conflicts of interest are dealt with appropriately.
Completing a register of interests may help you and your charity understand potential conflicts before they arise and give Responsible People more time to consider how best to manage them.
It can also be a useful way to demonstrate to regulators (including the ACNC) and stakeholders that your charity has taken appropriate steps to manage conflicts of interest.
If your charity has a conflict of interest policy, it should include details about how you use a register of interests.
Your charity can adapt our sample register of interests for use.
What to include in the register of interests
A register of interests may include some or all of the following:
- the Responsible Person’s name
- the date of their appointment
- record of interests, such as:
- current and previous paid work
- current and former trusteeships
- current and former directorships
- current and former membership of other organisations, or
- relevant interests of family or friends (including financial, non-financial personal interests)
- relationship of interests (if any) to the organisation’s activities or proposed activities
- date of disclosure
- steps taken to prevent or manage the conflict, if any.
While it can be difficult to determine whether an interest is relevant, it is always best to err on the side of caution and disclose it through inclusion on your charity’s register of interest.
Remember, it is your duty as a Responsible Person to notify the organisation if your interests change, or as soon as you feel a potential conflict may arise.
It is a good idea to create a form for declaring conflicts of interest that should be available to all Responsible People, and to include it in any induction process.
Administration of the register
Your charity’s register of interests should be properly maintained, including being updated when a change occurs.
If your organisation has staff, your chief executive officer or a senior manager should be responsible for maintaining and updating the register.
This will help ensure consistency in how it is maintained, and will place responsibility for its maintenance in the hands of an impartial person.
Your charity’s attitude and approach towards conflicts of interest plays a key role in how successful it is in responding to them when they arise.
Responsible People should never feel apprehensive about disclosing a potential conflict. Rather, they should view disclosing their interests as part of their role, and should encourage colleagues to do the same.
The key to managing these conflicts responsibly is to encourage, facilitate and record all disclosures – to create and promote a culture of disclosure.
A cornerstone in achieving this is to encourage open discussion on conflicts of interest in a supportive and non-judgmental way. Your charity can promote a culture of disclosure by:
- informing new Responsible People about your policy on conflicts of interest, and providing them with a copy
- providing Responsible People with access to other materials relating to conflicts of interest (such as this guide)
- providing Responsible People with opportunities to complete training on conflicts of interest
- clearly stating the expectation that all Responsible People must record any actual, potential or perceived conflicts of interest in a register of interests
- providing easy access to the register of interests so Responsible People can:
- record new or additional interests
- review interests already listed on the register, and
- review other Responsible People’s interests (this can be useful in identifying potential or perceived conflicts which may not be initially apparent to a conflicted Responsible Person)
- reviewing the register of interests before every meeting
- at board meetings:
- making conflicts of interest a regular agenda item – a conflict may not be apparent until after a motion has been proposed. This also has the benefit of routinely reminding Responsible People of their duties, and
- recording any conflicts raised during meetings in the register of interests.
Managing conflicts of interest once they are identified
Once a conflict of interest has been identified, the next step is to ensure it is appropriately managed.
The duty of managing a conflict of interest is shared between the Responsible Person who has the conflict, and other Responsible People in the charity.
The conflicted Responsible Person must first identify their conflict of interest, and then notify the other Responsible People as soon as possible – for example, prior to or during a board meeting – so there is time to properly address the conflict.
It is then the duty of the remaining Responsible People to decide what the appropriate next steps are and how the conflict will be managed.
Conflicts of interest should be managed by impartial decision-makers not involved in the conflict.
Your charity will need to consider the risks associated with the conflicted Responsible Person being involved in a specific decision. That way the charity and its Responsible People can determine the most appropriate way to address the conflict.
Usually, the conflicted individual will not be involved in a discussion regarding any action that addresses their conflict of interest. By removing the conflicted individual from the management process, your charity can demonstrate it has acted responsibly and with reasonable care.
The process may be something like:
- A Responsible Person identifies they have a conflict of interest.
- The conflicted Responsible Person notifies the charity of their conflict in line with the charity’s policy.
- The other Responsible People determine the appropriate action to address the conflict.
- The Responsible People inform the conflicted Responsible Person of the outcome.
The steps your charity takes may vary depending on its conflict of interest policy, as well as its processes and systems.
It is also important to remember that sometimes a conflict of interest may be identified by someone other than the person who has the conflict.
Some conflicts of interest may require your charity to take remedial action to ensure it does not undermine the ability of Responsible People to do their job.
This action will depend on the nature of the conflict of interest and on your charity’s particular circumstances, such as any policies it has in place for managing conflicts of interest.
You should consider the involvement of the conflicted Responsible Person when dealing with the conflict of interest. Depending on the circumstances, it may be appropriate to have them:
- excuse themselves from participating in any discussion on the conflict
- remove themselves from the room during the time of any discussion
- abstain from voting on the matter.
You will need to determine, based on your obligations under the law and your charity’s own circumstances and policy, what form of remedial action is appropriate. You may need to take a number of steps to address the conflict.
In some situations, conflicts can arise that are serious or which regularly impact on the ability of a Responsible Person to make decisions in the best interests of the charity.
In these cases, it may best for the Responsible Person to consider whether it is appropriate for them to continue to be a Responsible Person, or whether they should resign.