Understanding the Basics of Conflict of Interest

Employees who perform official duties are expected to perform those duties in the best interest of and by representing the organization that has employed them. A conflict of interest can only arise when an employee, director or officer of the organization appears to have or has a motive based on self interest, where the organization is completely unaware of the motives which could be potentially adverse to its best interest.

If a conflict of interest results in financial or economical loss to the organization through waste, abuse or fraud, then criminal, civil and administrative remedies can be pursued as the situation or policy dictates.

What is Conflict of Interest?

Conflict of interest is usually described as any situation that would involve a person’s “self-dealing”, “non arms length relationships”, “serving two masters” or even “related party transactions” all of which could result in the gain or benefit for one party at the expense of another. A structured definition of the conflict of interest is:

  • The convergence between an individual’s personal relationships/obligations/interests and his/her professional obligations towards the organization.
  • So much so that an independent observer can rationally question the actions, outcomes and motives regarding the actions taken and decisions made by the particular individual, employee, director, officer as well as
  • The individuals immediate family, third party or organization that might have a business association or interest where they might receive “things of value” as a result of the actions taken or decisions made by the particular individual whether they’re an employee, officer or even the director of the organization.

What Are “Things of Value”?

“Things of value” include various forms of financial benefits, such as commissions, salaries, raises, bonuses or even promotions that are not offered by the organization. It could even include receipts of automobiles and gifts of nominal values, there could be receipts of investments, annuities or even paid vacations. Payment of credit card bills, or any other forms of personal expenses, receipts for bonds, stocks, insurance policies which will be paid by the third party, a promise or offer of employment, realization of unfair competitive advantage, business profits or any other forms of compensation being provided by the organization to its employees, officer and directors.

Is Conflict of Interest a Crime?

In the U.S, conflict of interest generally is not considered as crime unless the individual with the “conflict” is actually a government employee or works with a government employee. However, if the conflicting interest of an employee, officer or director results in economic or fiscal loss or loss of competitive advantage of the organization then an intentional act of abuse or fraud which involves bribery or receiving rewards can be considered as a crime punishable by law.

Common Examples of Conflict of Interest

The following are considered to be the most common examples concerning conflict of interest:

Administrative Funding/Decisions:

An employee or officer hires a consultant who is related to them without getting any approval by the organization.

Business/Consulting Interests:

An employee, officer or director makes referrals to a business venture in which that particular individual, a member of his family or an associated entity, has some financial interest.

Use of Services, Materials and Equipment:

An employee or officer uses the organization’s resources and facilities for external business activities or private consulting.

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