April 21, 2014
Mark L. Hefter, President of the Association of Fundraising Professionals NYC Chapter, a Kellen Company client, explains a regulation in New York state that will affect associations and non-profits. Mark L. Hefter, JD, CPA, LLM, is Vice President of Gift Planning for the American Technion Society.
On December 18, 2013, Governor Andrew Cuomo of New York signed the Nonprofit Revitalization Act of 2013 into law. Most of the Act takes effect on July 1, 2014. The Act will have a major effect on the governance of all New York nonprofit corporations and charitable trusts, as well as any such entity organized outside the state that is registered to solicit contributions in New York.
The Act likely will affect four major areas of nonprofit governance:
- Related Party Transactions: The Act requires that a nonprofit subject to the Act engage in certain practices prior to entering into any transaction between the nonprofit and a “related party” (e.g., a director, officer or key employee of the nonprofit). Among the requirements of the Act in this area: the related party is required to disclose her/his interest in the transaction. The nonprofit is required to determine that any such transaction is fair, reasonable and in the best interest of the nonprofit.
- Conflicts of Interest: All nonprofits subject to the Act must adopt a conflict of interest policy that insures that directors, officers and key employees act in the nonprofit’s best interest. Directors and trustees of nonprofits are required to file annual disclosures.
- Audit Oversight: Any nonprofit subject to the Act and required to file an independent audit of its financial statements must have a standing audit committee (or the full Board) to oversee the audit. An audit committee must consist of at least three members. Each member of an audit committee must be a member of the Board and independent (i.e. has no financial interest in the nonprofit). The Act requires the body overseeing the audit to retain or renew the auditor on behalf of the nonprofit and review the results and related management letter with the auditor. Nonprofits with more than $1 million in revenue must also have the overseeing body review the scope and planning of the audit and evaluate the performance of the independent auditor.
- Whistleblower Policy: Every nonprofit subject to the Act and which has 20 or more employees and annual revenue greater than $1 million must adopt a whistleblower policy.
Between now and the effective date of the Act, every nonprofit subject to it should:
- Review its Bylaws, Policies and other Organic Documents to insure compliance with the Act
- Adopt or Amend Conflict of Interest, Audit Oversight and Whistleblower Policies