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Q: When do board members have a conflict of interest?
A: A conflict of interest arises when a person's duty of loyalty to the organization conflicts with a competing interest that the person may have either with the organization or with a particular transaction. Therefore, a thorough review of any potential board member's interests should be conducted to ensure that the member will not have unnecessary conflicts during their service on the board. Additionally, all organizations should adopt a conflict of interest policy to protect the organization from unethical or illegal actions. In completing an application for tax-exempt status under federal law, organizations are asked if they have adopted a policy, and the instructions for the application (IRS Form 1023) provide a sample conflict of interest policy that boards may adjust to fit state laws and the needs of the organization. New board members should sign the policy; in addition, many organizations utilize annual statements for continuing board members. If a board member has a conflict of interest, the board member is required legally to recuse himself or herself from the decision making on that matter.