Don’t Be Caught Off Guard by Organizational Conflict of Interest in Your Ministry

Church A is behind in its bookkeeping responsibilities due to recent turnover. A staff member recommends accounting services from their spouse’s financial services company. It’s a convenient connection, but is it also a conflict of interest? Maybe … or maybe not. It can depend on whether the potential conflict of interest is disclosed, whether it can be proved that the decision is acting in the church’s best interest and other factors.

A conflict of interest can be damaging to your ministry. Identifying these issues, establishing policies and enforcing consequences can help guard your church.

What is a conflict of interest?

A conflict of interest happens when a person involved in the church has competing interests, causing potential bias in someone’s decisions or influencing how someone acts or votes. It can result in personal, financial or professional gain of a pastor, staff, board member, trustee or elder at the expense of the church. Conflicts of interest advance one’s personal interest while causing harm to the church.

A conflict of interest can be:

• Perceived or real
• Intentional or unintentional
• Immediate or in the future

A few examples of potential conflicts of interest within the church include the following:

• A staff member is responsible for VBS decorations, including printed posters. She asks her son’s print shop to handle the signs.
• A youth pastor oversees planning for next year’s summer camp. A camp owner offers the youth pastor a free week of personal cabin use if he selects his camp.
• A church staff member votes on compensation for another staff member.

What can happen when there’s a conflict of interest?

Everyone is responsible for transparency and acting in the church’s best interests. When this doesn’t happen, there can be damaging consequences.

The IRS can charge excise tax on “excess benefit transactions” defined in Section 4958 of the Internal Revenue Code. The IRS can impose “an excise tax on excess benefit transactions between a disqualified person and an applicable tax-exempt organization.”¹ A disqualified person “is any person who was in a position to exercise substantial influence over the affairs of the applicable tax-exempt organization.”²

Your ministry could potentially face lawsuits. For example, the worship director’s daughter is hired for a graphic design position at the church. A lawsuit could result if another candidate had interviewed for the job and believed they were not hired because of a biased board vote.

A bruised reputation and damaged trust can be steep prices to pay for conflicts of interest. Rebuilding trust can be slow and difficult after an incident causes a congregation to question the integrity of a church’s decisions.

Take Steps to Guard Your Ministry

Your ministry can minimize the risk of organizational conflict of interest by having effective policies in place and educating staff about the following:

Disclose potential conflicts to leadership: As soon as you’re aware of the possibility of a conflict of interest, notify leadership immediately. Disclosing potential conflicts early on allows leadership to make proactive — rather than reactive — decisions. Educate staff and board members about how to formally report a conflict of interest through appropriate channels.

Keep records: Board meeting minutes should be included in your church records to help prove that you are acting in the church’s best interest. Document any conflicts that are disclosed and how the church will proceed.

Withdrawal to avoid conflict of interest: Board members with a conflict of interest should recuse themselves from voting on related issues.

Enforce consequences: If a conflict of interest is not disclosed or acted on, follow through with well-defined consequences to demonstrate a dedication to the church’s integrity.

Don’t accept personal gifts: No matter how well-intended, turn down gifts in the form of money, products and services that could be viewed as a conflict of interest.

Develop a church conflict of interest policy: Create a written policy that details the church’s rules, procedures and consequences. Define who to report to and how issues are resolved, and state if termination could result from a conflict of interest.

Get liability insurance: Protect your ministry from financial strain and lost time that can come with settling these types of disputes. Liability insurance can help defend against lawsuits related to issues like unlawful termination — which could stem from a conflict of interest.

Is your church vulnerable to risk?

At GuideStone^®, we come alongside you to help minimize risks, including organizational conflicts of interest. We’re with you through every season of ministry with protection for your people and your property so you can focus on fulfilling the Lord’s calling in your life. For a risk assessment or more information, contact us at InsuranceSolutions@GuideStone.org or (214) 720-2868, Monday through Thursday, from 7 a.m. to 4:30 p.m. CT and Friday, from 7 a.m. to 4 p.m. CT.

This article is for informational purposes only. It is not intended to be construed as legal advice. Readers should use this article as a tool, along with best judgment and any terms or conditions that apply, to determine appropriate policies and procedures for your church’s risk management program.

¹irs.gov/charities-non-profits/charitable-organizations/intermediate-sanctions

²irs.gov/charities-non-profits/charitable-organizations/disqualified-person-intermediate-sanctions