Frequently Asked Questions
Ethics, Accountability and Conflicts of Interest
Do we need a Code of Ethics?
There is no legal requirement to have a Code of Ethics unless your nonprofit is a party to a contract, or subject to accreditation or similar standards that require the nonprofit to have one, or party to a contract with the Federal government (see below). Nevertheless, the public expects nonprofits to behave ethically, and many standards of ‘best practices’ encourage nonprofits to have one in place. Many nonprofits publish their Codes of Ethics on their web sites.
Are government contractors required to have a Code of Ethics?
Some government contractors are required to adopt and distribute a written “Contractor Code of Business Ethics and Conduct” (FAR 52.203-13) to all employees. Covered nonprofits are those that have a contract with the federal government expected to exceed $5 million, with a performance period of 120 or more days. Covered employees must comply with the new federal regulations (FAR 52.203-13) that also require the display of a fraud hotline poster issued by the Office of the Inspector General. Failure to comply with the new regulations could result in the withholding of the contract payment and loss of the contract reward fees. These new rules are effective for contracts issued after December 24, 2007, but do not apply to pre-existing contracts. The rules contain some exemptions for smaller organizations that nevertheless meet the $5 million threshold.
One of our employees would like to run for Town Council. Do most nonprofits allow this? Isn’t it a conflict of interest?
It is generally not possible to control what employees do on their own time, and it may actually be helpful to have an employee who is a recognizable leader in the community. However, the situation may also result in what is known as a “duality of interest” because the interest of the town may not be consistent with the interest of the nonprofit. This is the time to establish clear expectations for your employee about the time commitment his job with your nonprofit requires, underscoring that it would be unacceptable if his outside pursuits interfered with his job performance. You may also want to refer to his duty, as an employee of the nonprofit, to be loyal to the nonprofit's interests, and how that might create a conflict of interest should he have to make any decisions about issues that are contrary to the nonprofit’s best interests.
Another potential conflict may arise if he is interviewed by the media either while he’s a candidate or after he has been elected to the Town Council. He should not make any statements as a spokesperson of the nonprofit—and should clarify for the press that his statements are made in his capacity as a citizen and Town Council member, not an employee of the nonprofit. Similarly, the nonprofit may not endorse or support (or oppose) his candidacy for public office.