The New York Non-Profit Revitalization Act of 2013 (“the Act”) will significantly impact the way most non-profits and charitable trusts handle a variety of issues. The law’s provisions, most of which go into effect July 1, 2014, cover three broad areas: 1) financial reporting requirements, 2) governance and 3) the NYS attorney general’s (“AG”) enforcement authority. For the most part, the new rules modernize and streamline various requirements.wholesale jerseys from china Below is a summary of some of the most important changes.
Organizations registered in New York State to solicit charitable contributions have long had to file annual statements and reports with the AG’s office. Three types of reports are required, with escalating thresholds for increased review. The Act gradually raises those thresholds in three stages over 7 years, significantly lowering the burden for organizations with smaller revenues:
- Unaudited report on AG form:
- Current threshold: $100,000 or less
- Beginning July 1, 2014: $250,000 or less
- Independent GAAP compliant CPA review:
- Current threshold: $101,000 – $250,000
- July 1, 2014: $250,001 – $500,000
- July 1, 2017: $250,001 – $750,000
- July 1, 2021: $250,001 – $1,000,000
- Independent CPA audit:
- Current threshold: > $250,000
- July 1, 2014: > $500,000
- July 1, 2017: > $750,000
- July 1, 2021: > $1,000,000
Additionally, the Act:
- Authorizes the AG to permit or mandate electronic filing
- Empowers the AG to require an independent CPA audit after an independent CPA review
- Increases the report filing fee to $25 from $10
The Act includes numerous changes that affect routine non-profit governance. Some of the most important include:
- Streamlines legal classification of non-profit entities. Under current law, non-profits must be categorized as a Type A, B, C or D corporation. The Act simplifies to “charitable” and “non-charitable.”Charitable non-profits include those that are educational, religious, scientific, literary, cultural or for the prevention of cruelty to animals or children. Non-profits formed prior to July 1, 2014 will be grandfathered as follows:
- Type A: deemed noncharitable
- Types B and C: deemed charitable
- Type D: designation depends on whether the corporation was formed for charitable or non-charitable purposes.
- Allows electronic delivery of various governance-related communications. Under the Act, financial statements, meeting notices, consents to both corporate actions and decisions taken without a board meeting, waivers, notices and proxies can be delivered by email or fax. Non-profits should be prepared to verify the origin of any such electronic communication; the AG will likely issue rules regarding this. Current law provided various specific means of delivery, most frequently written communication delivered in person or by mail.
- Permits attendance at board meetings by video conference. All members must be able to participate fully, including by voting or objecting.
- Simplifies committee types and clarifies prerogatives. The Act distinguishes between committees of the corporation and committees of the board and specifies that actions of the former are not binding upon the board. Simultaneously it does away with the old distinction between standing and special committees.
- Redirects approvals for certain actions to the AG from the Supreme Court.In order to simplify and expedite these processes, the AG may now approve:
- Disposition of assets
- Mergers and consolidations
In most of these cases, non-profits retain the right to petition the court for approval but must notify the AG.
One broad area in which the Act does not necessarily simplify things for non-profits is that of governance policies, procedures and controls. Certain policies and procedures are now mandated.
- Audit requirements. Under the Act, all non-profit boards must establish an audit committee composed of independent directors (those not currently or recently employed by the non-profit or by entities that receive payments from the non-profit). Additional requirements are imposed on organizations with anticipated annual revenue in excess of $1 million.
- Related party transactions. The Act introduces new requirements regarding related party transactions. While generally prohibiting them, the Act allows boards to approve them after considering alternatives. The entire process must be documented. The Act also specifies that policies must be in place to receive and consider petitions regarding misappropriation, diversion and ultra vires activities (decisions made outside the duly constituted authority or powers of the decision-maker). Additionally, the Act now prohibits any employee of a non-profit from serving as board chair or in a similar position.
- Conflicts of interest. Non-profits are now required to have a conflicts of interest policy that defines the circumstances of a conflict of interest, excludes conflicted people from certain decision-making and attempts to influence decision-making, procedures for disclosing, addressing and documenting conflicts of interest. The last item includes an annual requirement that directors and trustees disclose potential conflicts, but it also incorporates a safe harbor provision.
- Whistleblowers. Non-profit corporations and charitable trusts with 20 or more employees and prior fiscal year income of more than $1 million must have stated policies protecting whistleblowers.
As noted throughout this Bulletin, the New York State Attorney General’s office will play a much larger role than heretofore in non-profit accountability, compliance and governance. Several of the provisions of the Act include authority for the AG to develop or expand upon rules governing the actual execution of the requirements. Non-profits that are careful to comply are unlikely to find this more muscular approach to enforcement onerous; those that are less careful may.
THE BOTTOM LINE
The New York Non-Profit Revitalization Act of 2013 goes a long way towards modernizing the state’s rules governing non-profits. While it introduces several new requirements, it also seeks to reduce some administrative burdens. Directors of every non-profit or charitable trust will want to confer with both their regular and independent CPAs to ensure compliance with the new financialreporting requirements. Additionally, it is advisable for boards to confer with an experienced non-profit attorney to align both mechanical and policy aspects of governance with the Act’s provisions. Your AKM CPA will be glad to assist you with the financial requirements and will, if necessary, help you find qualified legal counsel.