Friedman LLP Partner and Director of Not-for-Profit Services Amish Mehta, CPA, and Nixon Peabody Partner Michael J. Cooney, recently hosted a seminar for nonprofit leaders at Friedman LLP's office in New York City on the new requirements surrounding the New York Nonprofit Revitalization Act.
The Act, unanimously passed by New York's legislature in June 2013 and signed into law by Governor Cuomo in December 2013, is the first major revision to New York's nonprofit laws in over 40 years. The Act serves two general purposes: it reduces unnecessary and outdated burdens on nonprofits and it enhances nonprofit oversight and governance to improve public trust.
Its provisions apply to nonprofits that are incorporated in New York, but one significant section - related to financial audits and financial reporting to the state - applies to all nonprofits that are registered in New York for charitable solicitation purposes. Most provisions of the Act become effective July 1, 2014.
One of the major provisions focuses on the modernization and streamlining of nonprofit governance action and communication. This allows for the incorporation of new technology options (e-mail and electronic video screen communication such as Skype) for board meetings and new methods for boards and members to take action without meeting. Additionally, boards previously needed to provide residential addresses of officers and directors to members upon requests. Now, due to privacy concerns and alternative communication methods, this is not required.
There are also many new enhanced governance procedures, such as:
Board chair - prohibits employees from serving as board chair or holding a position with similar responsibilities.
Compensation approval - no person who may benefit from a compensation decision may participate in any board or committee deliberation or vote concerning that person's compensation.
Definition of independent director - provides a number of criteria involving current and previous relationship with the nonprofit for determining if an individual can be deemed an independent director. See page 10 of the presentation for a full list of criteria.
Conflict-of-interest policy - requires all nonprofits to adopt a conflict-of-interest policy covering directors, officers, and key employees; the policy would define what constitutes a conflict of interest, prescribe procedures for disclosing and approving conflicts, and require completion of a conflict disclosure form before a director is elected and annually thereafter.
Whistleblower policy - nonprofits with 20 or more employees and annual revenue in the prior fiscal year in excess of $1,000,000 must institute a whistleblower protection policy. See page 18 of the presentation.
The Act also seeks to simplify the approval process for certain transactions.
Ability to seek consent of the attorney general as opposed to the New York Supreme Court for certain corporate transactions - The Act now provides a simplified process for "charitable" entities, whereby nonprofits can seek the approval of the attorney general instead of initiating a court proceeding for transactions such as dissolution (sale, lease, exchange, or other disposition of substantially all assets); merger or consolidation; and change of purpose. See page 14 of the presentation.
Lowered approval requirements for real property transactions - the Act allows a simple majority of the board to authorize the purchase, sale, lease, exchange, or other disposition of real property, provided that the property to be acquired or disposed of does not constitute all, or substantially all, of the assets of the organization. See pages 12 and 13 of the presentation.
Additionally, there are some requirement changes regarding financial audits and financial reporting - as we discussed earlier, these are the requirements that apply to all nonprofits that are registered in New York for charitable solicitation purposes.
Raised threshold for financial audits - the threshold for gross revenues in determining the requirement for financial audits will increase starting July 1, 2014 to $500,000 ($750,000 in 2017 and $1,000,000 in 2021).
Audit committee - requires all nonprofits subject to the audit thresholds to have a designated audit committee of the board comprised of independent directors responsible for retaining an independent auditor and reviewing the results of the audit. See pages 19-24 of the presentation for more information.
For nonprofits registered to solicit charitable contributions in New York, be aware of new thresholds for financial reports and audits and the new audit committee responsibilities.
For all other nonprofits:
- Determine whether board chair is independent
- Review the definition of Independent Director, conflict of interest and whistleblower policies
- Determine what new electronic communication and meeting options work best for your organization
- Finalize your organization's process for setting executive compensation
- Review the new requirements for real estate and major transactions
Again, though most provisions of the Act become effective July 1, 2014, the time to prepare for these changes is now.
If you have any questions about the content of this article, please contact Amish Mehta, CPA, at AMehta@FriedmanLLP.com.