What if?
One of your board members owns a plumbing company and recommends tearing out a sewer line. He then immediately provides a bid for the work. Is that a conflict of interest? Maybe…
A conflict of interest occurs when a church leader’s personal, financial, family, or professional interests could interfere with their responsibility to make decisions that are in the best interest of the church.
A conflict of interest does not necessarily mean someone has done something dishonest or unethical. However, even the appearance of favoritism or personal gain can damage trust within a congregation.
You’re probably thinking, “We don’t really need to do this do we? We never have and it’s been fine!” Things are always fine, until they aren’t. Better to take precautionary steps than to deal with a mess later.
Church leaders have a responsibility to protect the church’s resources, maintain integrity, and ensure that decisions are made for the benefit of the ministry rather than any individual.
10 common examples of conflicts of interest in churches
| Situation | Potential conflict |
|---|---|
| 1. Hiring family members | A pastor recommends hiring a spouse, child, or relative without an impartial hiring process. |
| 2. Awarding contracts | A board member votes to hire a construction company they own or have a financial interest in. |
| 3. Setting pastoral compensation | A pastor participates in determining or approving their own salary, bonuses, or benefits. |
| 4. Purchasing from church members | A church consistently purchases products or services from a board member’s business without comparing prices. |
| 5. Handling church finances | A treasurer approves reimbursements to themselves without independent review. |
| 6. Accepting personal gifts | A vendor gives an expensive gift to a pastor or administrator who makes purchasing decisions. |
| 7. Using church property | A leader uses church vehicles, equipment, or facilities for personal business without authorization. |
| 8. Employing close friends | A pastor hires a close friend without considering other qualified applicants. |
| 9. Providing financial assistance | A board member influences the church to provide benevolence assistance to a family member. |
| 10. Serving competing interests | A leader serves on the boards of two organizations competing for the same funding, property, or resources. |
How church leaders can avoid conflicts of interest
1. Establish a written conflict-of-interest policy
Every church should have a policy explaining what constitutes a conflict of interest, how potential conflicts should be disclosed, and how decisions involving those conflicts will be handled.
This policy should apply to pastors, board members, employees, and anyone with authority over church resources.
2. Require annual disclosure statements
Ask church board members and key employees to complete a simple annual disclosure form identifying potential conflicts.
For example, a board member might disclose that their spouse owns a cleaning company that occasionally provides services to the church.
Disclosure doesn’t automatically prevent the church from using that company. It simply allows the church to make an informed, independent decision.
Simply include these in your board meeting minutes.
3. Require individuals to abstain from decisions involving personal interests
When a conflict exists, the individual should disclose it and remove themselves from the decision-making process.
Example: If the church is considering hiring a board member’s electrical company, that board member should not participate in the discussion, evaluation, or vote concerning the contract.
The remaining board members should determine whether the arrangement is fair and in the church’s best interest.
4. Obtain competitive bids for significant purchases
Churches should consider obtaining multiple bids when making major purchases or hiring contractors, particularly when a church member or leader has a financial interest in the transaction.
This helps demonstrate that decisions are based on price, quality, qualifications, and the church’s needs rather than personal relationships.
I once created a policy that required at least three independent bids for any work costing more than $1000. This due diligence provided supplier options and ensured that estimates were reasonable.
You should try to support the business owners that give to your church, just make sure that you can demonstrate their work is necessary and priced at fair market value.
5. Document decisions in board meeting minutes
When potential conflicts arise, the minutes should record the nature of the conflict, who disclosed it, whether the individual left the discussion and abstained from voting, and the reasons for the final decision.
Good documentation protects both the church and its leadership.
6. Create independent financial oversight
No individual should have complete control over approving, processing, and reviewing their own financial transactions.
For example, a pastor’s expense reimbursements should be reviewed and approved by another authorized individual, preferably someone independent of the pastor.
7. Establish a culture of transparency
Church leaders should feel comfortable identifying potential conflicts without being accused of wrongdoing.
A good guiding principle is:
When in doubt, disclose it.
It’s much easier to address a potential conflict before a decision is made than to explain an undisclosed conflict after someone raises questions.
Why this matters legally
The IRS encourages tax-exempt organizations to adopt conflict-of-interest policies. Although such a policy is not universally required for federal tax exemption, it helps protect against improper personal benefits and questionable financial transactions.
Churches should be particularly careful with pastoral compensation, transactions involving relatives, and business arrangements with board members. Excessive personal benefits can result in significant tax consequences, including excise taxes.
A simple test for church leaders
Before making a decision, ask three questions:
- Could I or someone close to me personally benefit from this decision?
- Would I be comfortable if the congregation knew all the details?
- Would an independent person believe this decision was made in the church’s best interest?
If any answer raises concerns, disclose the situation and seek an independent review.
My recommendation for churches: Adopt a written conflict-of-interest policy, require annual disclosures from board members and key staff, and establish a consistent process for handling conflicts.
The goal isn’t to eliminate every relationship that might create a conflict. In smaller churches, that would often be impossible. The goal is to ensure that personal relationships never take priority over the church’s mission, resources, and responsibilities.
Have questions? Give us a call!