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New York State Nonprofit Revitalization Act – Guidelines to Compliance

Reminder: Review Fiscal Policies and Audit Procedures

AAFCPAs strongly recommends that nonprofits registered to conduct charitable solicitations in New York State review and revisit their by-laws and policies to ensure compliance with the New York State Nonprofit Revitalization Act of 2013 (The “Act”).  The Act, effective July 1, 2014, included sweeping reform legislation which reduces burdens on nonprofits and enhances governance and oversight of nonprofits.
The Nonprofit Revitalization Act brought reform in two main areas:

  • Enhanced nonprofit governance and oversight to prevent fraud and improve public trust; and
  • Reduced unnecessary and outdated burdens on nonprofits.

AAF’s Summary of Key Provisions
The following AAF summary outlines key provisions that Board of Directors and Audit Committees should review to ensure compliance:

  • § 3 raised the gross revenue thresholds triggering the requirement to obtain an independent CPA’s audit from $250,000 to $500,000, and an independent CPA’s review from $100,000 to $250,000. The Attorney General will have authority to request an independent CPA’s audit from nonprofits with gross revenue over $250,000 after reviewing their annual filings.  This change will result in significant savings to organizations that previously were required to file audits.
    • If required to file a certified audit, the nonprofit must have a board or an authorized committee to be responsible for retaining the outside auditor and review findings.
  • § 33 and 74 require that boards, or board committees, undertake an independent review of transactions between the nonprofit and related parties, and affirmatively determine that such transactions are in the nonprofit’s best interest.
  • § 72 requires that, in cases where nonprofits are required by the Executive Law to obtain independent CPA audits, boards or board committees perform certain oversight responsibilities, including:
    • Review with the independent auditor the scope and planning of the audit prior to the audit’s commencement;
    • Upon completion  of the audit, review and discuss with the independent auditor:

    a)   any material  risks  and  weaknesses  in  internal controls identified by the auditor;
    b)   any restrictions on the scope of the auditor’s  activities  or  access to requested information;
    c)   any significant disagreements between the auditor and management;  and
    d)   the adequacy  of  the  corporation’s accounting and financial reporting processes;

    • Annually consider the performance and independence of  the  independent auditor; and
    • If the duties required by this section are performed by an audit committee, report on the committee’s activities to the board.
    • The board or audit committee must oversee the adoption, implementation of, and compliance with any adopted conflict of interest policy or whistleblower policy if this function is not otherwise performed by another committee.
    • If the nonprofit controls other corporations, the board or designated audit committee of the board of the controlling corp. may perform the duties required for those corporations.
  • § 73 prohibits any employee of a nonprofit corporation from also serving as chair of its board.
  • § 75 requires that nonprofits adopt written conflict of interest policies, and nonprofits with twenty or more employees and annual revenue exceeding $1 million adopt whistleblower policies.
  • § 130 makes the new requirements concerning audits, related party transactions, conflict of interest policies and whistleblower policies that are applied to charitable corporations also applicable to charitable trusts.

The Act also streamlined and modernized New York law to remove unnecessary burdens, save taxpayer dollars, and help nonprofits focus resources on providing services by:

  • Streamlining procedures for nonprofit mergers, property sales and corporate dissolutions, so that funds needed for ongoing charitable programs are not wasted on unnecessary red tape;
  • Modernizing laws to allow nonprofits to conduct their affairs more efficiently, such as permitting nonprofits to use email and video technology for meetings and allowing boards to delegate the approval of small transactions to committees; and
  • Eliminating unnecessary and costly requirements for nonprofits forming in New York, saving nonprofits money and time and allowing them to commence charitable programs more quickly.

The impact of the Act on nonprofit governance and policy-making is significant, and AAFCPAs encourages you to review your bylaws and policies to ensure statutory compliance.  The full details of the New York State Nonprofit Revitalization Action reform legislation (Bill S5845-2013) are available on the NY State Attorney General’s website.
AAFCPAs has provided the above summary of key reforms in an effort to advise our clients on compliance and best practice operations.  The Charities Bureau of New York State is currently updating its publications and forms and drafting new guidance to assist nonprofits in complying with the Act. Applicability is a threshold issue for any organization trying to understand the Nonprofit Revitalization Act.   We expect the Charities Bureau guidance to clarify the Act’s applicability to not-for-profit corporations and wholly charitable trusts, as well as provide clarification on the applicability to nonprofits headquartered in NY versus out-of-state organizations registered to conduct charitable solicitations in the state.  We will continue to keep you informed as new guidance is released.
If you have any questions, please contact your AAF Partner, or you may contact AAF’s Federal & State Compliance Specialist and Partner, Robin Kelley at 774.512.4011, RKelley@nullaafcpa.com

About the Author

Robin Kelley CPA
Robin is a leader of AAFCPAs’ Managed Accounting Solutions practice, providing strategic finance and accounting guidance, and leveraging state-of-the-art cloud-based solutions to support clients’ most critical business and operational processes.  She provides high-level CFO oversight and strategic planning, enabling clients to drive efficiency, reduce the cycle it takes to close books, and develop better benchmark and baseline financial processes to meet regulatory requirements and achieve growth in revenue & profits. Robin advises many organizations in meeting grant & lender compliance requirements, and identifying and addressing risks within their internal control environment.

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