Complying with the Nonprofit Revitalization Act’s rules

New York Governor Andrew Cuomo signed the Nonprofit Revitalization Act of 2013 last December. Even though the law represented the first major revisions to New York Not-For-Profit Corporation law in over 40 years, all I could say was, “Here we go again!” — with all due respect to Ronald Reagan who first made that phrase famous.

Before I provide you with some golden information regarding your ability to decipher and diagnose the requirements of the Revitalization Act, I have one more thought for you to ponder.

I am firmly convinced that the words “revitalization” and “affordable” should never again appear in the title of any legislative act.

The following information provides you with a list of questions that will enable you to determine through a gap analysis what policy and procedure changes are required for your organization to comply with the Revitalization Act.

The following checklist was prepared by my colleague Melissa Slater and designed to provide our faithful Business Journal News Network readers with a summary of the changes that resulted from this law. Completion of this checklist will facilitate a determination for your nonprofit organization regarding whether or not it is in compliance with the Nonprofit Revitalization Act’s changes before its effective date of July 1, 2014.

The checklist is designed so that any “no” answers require additional in-depth review to determine if your organization needs to update or modify existing policies and procedures. It’s imperative to get board and senior-management involvement in addressing changes to be made.

Please remember that the legislation is 70 pages in length and there are still sections of its requirements that require additional interpretation. So, you can use the following checklist as a cost-effective approach to achieving compliance with the act’s provisions. However, you should be aware of additional interpretations that may be issued subsequent to the date of this column.

1. The chair of the board of directors is not an employee of the organization?

2. If the CEO/executive director of the organization has a vote on the board, does she exclude herself from voting on her compensation and benefit package?

3. Does the organization have a conflict-of-interest policy?  If no, skip to number 4.

a.     Does the policy define the circumstances that constitute a conflict of interest?

b.     Does the policy have procedures for disclosing a conflict of interest to the audit committee/board?

c.     Does the policy require that the person with the conflict of interest not be present at or participate in audit committee/board deliberations or vote on the matter giving rise to such conflict?

d.     Does the policy prohibit against any attempt by the person with the conflict to improperly influence the deliberations or voting on the matter giving rise to such conflict?

e.     Does the policy have procedures for disclosing, addressing, and documenting related-party transactions?

f.      Does the policy require that existence and resolution of the conflict be properly documented?

g.     Does the policy require that prior to the initial election of any director, the director shall sign and submit to the secretary a written statement identifying:

(i)    Any entity of which the director is an officer, director, trustee, member, owner, or employee with which the organization has a relationship?

(ii)  Any transaction in which the organization participates in which the director might have a conflict of interest?

h.     Does the policy require that each director annually submit such written statement (identifying the transactions above) to the secretary?

i.      Does the policy state that the secretary will provide a copy of the completed statements to the chair of the audit committee or board if not audit committee?

j.      Is the board or audit committee responsible for overseeing the implementation of the conflict of interest policy?

4.     If the organization has 20 or more employees, does the organization have a whistleblower policy?  If no, skip ahead to question 5.

a.     Does the policy include procedures for reporting violations or suspected violations of law or nonprofit policies, including a procedure for preserving the confidentiality of reported information?

b.     Does the policy designate a whistleblower-policy administrator?

c.     Does the policy require that whistleblower-policy administrator report directly to the audit committee?

d.     Does the policy require that a copy of the policy be distributed to all directors, officers, employees and to volunteers who provide substantial services to the nonprofit?

e.     Is the board or audit committee responsible for overseeing the implementation of the whistleblower policy?

5. Is the organization required to obtain an annual audit? If no, skip ahead to question 11.

6. Does the board or designated audit committee of the board (audit committee) oversee the accounting, financial reporting, and audit of the financial statements?

7. Does the audit committee retain or renew the retention of the independent auditors (auditors)?

8. Does the audit committee review the results of the audit and related management letter with the auditors at least annually?

9. Does the organization generate more than $1 million in revenue? If no, skip to question 10.

a.     Does the audit committee review the audit scope and plan with the auditors prior to the audit’s commencement?

b.     Upon completion of the audit, does the audit committee review and discuss the following issues with the auditors:

(i)    Any material weaknesses in internal controls identified by the auditors?

(ii)  Any restrictions on the scope of the auditor’s activities or access to requested documents?

(iii)  Any significant disagreements between the auditors and management?

c.     Does the audit committee annually review and document the performance and independence of the auditors?

10. Are only independent directors allowed to participate on the audit committee?

11. Is the organization prohibited from participating in related-party transactions, unless they are determined by the board to be fair, reasonable, and in the organization’s best interest?

12. Are all directors, officers, or key employees who have an interest in a related-party transaction required to disclose to the board/committee the material facts of their interest?

13. Is the board/committee required to review related-party transactions for the following:

a.     Consider alternative transactions (if available) prior to entering into the transaction?

b.     Approve the transaction by a majority vote?

c.     Contemporaneously document in writing the basis for the approval, including the alternatives considered?

14. Does the organization prohibit any related parties from participating in the deliberations or voting related to these transactions?

So, once again, every “no” answer requires some review and modification to existing policies and procedures. You can see from these questions the level of granular detail and specificity now required from all New York state nonprofit corporations. The Nonprofit Revitalization Act’s requirements are one more example of the increasing pressure on small organizations to be able to comply with regulatory requirements in a fiscally affordable manner.

Gerald J. Archibald, CPA, is a partner in charge of the management advisory services at The Bonadio Group. Contact him at (585) 381-1000, or email: garchibald@bonadio.com