As the first major reform of not-for-profit corporation laws in 40 years, the Nonprofit Revitalization Act brings significant changes to how organizations are expected to operate within New York state, Michael J. Cooney, Esq., a member of the committee that helped to craft the legislation, said at the FAE’s 36th Annual Nonprofit Conference.

The law, which cleared the Legislature last June and takes effect this July, will, among other changes, require that the boards of organizations with more than $1 million in gross revenues perform active oversight over financial audits. (They would, for example, need to retain independent auditors and review the results of their audit.)

It would also require that transactions between a nonprofit organization and insiders who stand to benefit from them be fully disclosed, and that nonprofit boards determine that these transactions are fair, reasonable and in the best interests of the organization.

Cooney, who served on New York Attorney General Eric Schneiderman’s Leadership Committee to Revitalize Nonprofits, said that the law now clearly and specifically states how audit functions relate to nonprofit boards and committees, whereas it had been somewhat ambiguous before. He also mentioned that these requirements are probably not that different from what many developed nonprofits are
doing already.

“These requirements are not earth-shattering—they won’t be such a shock to all of you,” he said. “But the fact is, like so much of what gets written into law, you’ve got to make sure you’re touching all the right bases.”

He added that organizations must also be careful about whom they assign oversight of the audit function to, since the committee needs to be composed of members of the larger board itself. An organization cannot just say, “‘we’ve got Joe and Josephine who are great at audit, let’s have them on!’ That’s a problem,” he said. The committee needs the power to act on behalf of the board as a whole, which is why its members must be board members themselves.

Another change is that nonprofit organizations with 20 or more employees and an annual revenue over $1 million must adopt specific whistleblower policies for reporting illegal or fraudulent activity, as well as a conflict of interest policy. The challenge for nonprofits, Cooney said, is that today it’s not typical for many to have formal policies of any kind in place.

“How many have had the joy of talking to a charitable entity and asking ‘where is your policy book?’ And someone looks at you like you’re crazy and says… ‘we don’t even use the word policy in this
office!’” he said. “It’s that difficult.”

However, he impressed upon his audience the importance of making sure their nonprofit clients have a policy book in place that can be produced in the event of an audit.

“I ask you to raise these issues when you’re there with your clients, not because I understand you to be responsible for them... but there’s a tremendous amount going on that impacts what you do,” he said.  “And from my perspective, the clients owe it to you to ensure [that] they’ve got their act together under this, so you can do the good work you do and be a help for them.”