SUMMARY OF NON-PROFIT REVITALIZATION ACT
Signed by Governor Cuomo on December 18, 2013
Initially Effective July 1, 2014 (with a few provisions effective at later dates)
The Non-Profit Revitalization Act has set forth specific requirements for board policies and procedures. Therefore, the organization should review its current bylaws to determine whether or not these policies are currently included. If not, the organization should seek legal counsel to assist in those updates.
BOARD OF DIRECTOR AND COMMITTEE COMPOSITION
Committees of the board of directors must now have at least three members. In addition, the audit committee must be comprised of at least 3 independent board members. Independence is defined as follows:
1. Has not been an employee of the organization or its affiliate and does not have a relative who has been a key employee of the organization or its affiliate in the last three years.
2. Has not received and does not have a relative who has received more than $10,000 in compensation from the organization or an affiliate in the past three years.
3. Has not been an employee of and does not have a financial interest in any entity that has made payments to or received payments from, the organization or an affiliate in an amount exceeding the lesser of $25,000 or 2% of the organization’s gross revenue in the past three years. The definition of payment does not include donations. This requirement also applies to relatives of the board member.
The definition of “relative” includes spouse, domestic partner, father, mother, grandparents, great-grandparents, brother, sister, sibling’s spouse, son, daughter, child’s spouse, grandchildren and their spouses and great-grandchildren and their spouses.
Effective January 1, 2015, an employee of the organization, which includes the executive director, may not serve as the board chair. The executive director may be a board member, but would not be considered an independent board member. The executive director or any compensated board member must not be in attendance during any discussions or vote related to their own compensation.
USE OF ELECTRONIC COMMUNICATIONS BY BOARDS
The board may use electronic communications; however every board member “attending” a board meeting electronically (by video conference) must have the ability to participate in any discussion or vote. They must be able to hear all of the deliberations and must be able to be heard by all board members in attendance. This would eliminate the ability to vote solely by email. There are limited circumstances where email voting is allowed, such as an instance where a vote requires written unanimous consent.
CONFLICT OF INTEREST POLICY
All nonprofit organizations must have a conflict of interest policy including the following:
1. A definition of what will be considered to be a conflict of interest.
2. How the conflict of interest is to be reported to the audit committee.
3. The individual involved in the potential conflict of interest may not be present during board discussions or votes concerning the matter.
4. The individual may not attempt to improperly influence the board’s discussions or vote on the matter.
5. The conflict or potential conflict must be documented in the organization’s records (including board minutes) along with the resolution of the issue and the reasons for the particular outcome.
6. Board members must give a signed statement to the secretary of the organization before they are elected and annually thereafter containing the following information:
a. Any entity that the director is an officer, director, trustee, member, owner or employee of that the organization has a relationship with.
b. Any transaction that the organization is participating in and the director may have a conflict regarding.
c. The secretary must provide copies of the statements to the chair of the audit committee and/or the chair of the entire board, if the board chair is not on the audit committee.
Any nonprofit organization that has more than 19 employees and over $1,000,000 in annual revenue in the most recent fiscal year must adopt a whistleblower policy. The policy is intended to protect individuals, including board members, employees, or volunteers which, in good faith, report any instance of an act that is illegal, fraudulent or in violation of any of the organization’s policies from retaliation. The policy must include the following:
1. Procedures for reporting instances considered to be a violation of law or of the organization’s policies and how confidentiality will be maintained.
2. An individual who is an employee, officer or director of the organization must be assigned to administer the policy and report it to the audit committee, another committee of independent directors and/or the entire board of directors.
3. A copy of the policy must be given to all directors, officers, employees and volunteers providing substantial services to the organization.
RELATED PARTY TRANSACTIONS
The Non-Profit Revitalization Act does not prohibit related party transactions, but it does require that the organization determine that the transaction is not abusive and is in the best interest of the organization. The transaction must be transparent as noted below:
1. The individual (related party) should disclose the transaction to the board.
2. The board must consider alternatives to the transaction.
3. The board must document the reason it made the decision that it made.
4. The majority of the board at the meeting where the vote takes place must approve the transaction.
5. The individual (related party) must excuse himself from the meeting during any discussion of or vote on the matter.
6. The individual may provide information regarding the transaction prior to board discussion and the vote.
The attorney general has the authority to void or rescind any related party transaction that violates these requirements and is deemed inappropriate. The Attorney General may also seek restitution on behalf of the organization, or remove directors or officers and impose a penalty if there was intentional misconduct.
The board has the following duties:
1. The board of directors is responsible for filing appropriate documentation to the state, including Form CHAR500, Annual Filing for Charitable Organizations. Willful failure to file could result in the Attorney General dissolving the corporation. The board should have controls in place to be certain that all regulatory filings are reviewed by the board or a committee thereof for accuracy and are filed timely.
2. The board must oversee the annual independent audit (for those organizations required to provide audited financial statements) through an audit committee or by the full board, including:
a. Oversight of the accounting and financial reporting.
b. Oversight of the audit of the organization’s financial statements.
c. Annually retain or renew the services of an independent auditor.
d. Review the results of the audit and the management letter with the auditors.
e. For nonprofits with revenue in excess of $1,000,000, the audit committee must:
i. Review the audit scope and plan with the auditors prior to the beginning of the audit.
ii. When the audit is complete, the audit committee must review and discuss any material weaknesses in internal controls identified in the audit, any restrictions on the scope of the audit, and any significant disagreements between the auditors and management.
iii. Consider the performance of the auditors.
iv. If the audit committee conducts these requirements, the committee must report those items to the board of directors.
f. The board or audit committee is responsible for overseeing compliance with the conflict of interest policy and whistleblower policy.
g. Only independent directors may participate in discussions or voting related to items noted above.
h. The effective date of this provision was extended to January 1, 2015 for small organizations.
3. The law has requirements for meeting notifications and voting.
4. For property transactions – a substantial property transaction requires a vote of two-thirds of the board. Substantial is a transaction that would make up all or substantially all of the assets of the organization. If the board has more than 21 members, a majority vote of the board is allowed for a substantial transaction.
5. For property transactions that are not substantial, a majority vote of the board is required.
6. If a committee is authorized to act on behalf of the board in property transactions, the committee must report to the board no later than the next scheduled board meeting.
Change in Type of Financial Statement Required Under Article 7-Aof the Executive Law for 7A or Dual Filers:
The provisions of the Non-Profit Revitalization Act are extensive; however many are not new. Please call our office and speak with the partner or manager in charge of your engagement is you would like additional information. In addition, some of the provisions of the new law may require consultation with legal counsel to determine the effect these requirements have on your organization.