NY AG, lawmakers propose overhaul of laws governing nonprofits

New York Attorney General Eric Schneiderman on Tuesday joined members of the state Senate and Assembly in proposing legislation to overhaul the laws governing New York’s nonprofit sector.

The proposed Nonprofit Revitalization Act and Executive Compensation Reform Act would be the first “major reforms” to the state’s charities laws in more than 40 years, the attorney general’s office said in a news release.

The proposals are meant to “make New York a model for nonprofit governance in the country, while cutting unnecessary red tape to better enable nonprofits to perform,” the statement said.

New York’s nonprofit organizations are responsible for one in seven jobs in the state and generate hundreds of billions of dollars in annual revenue, according to the attorney general’s office.

The lingering recession, slow economic recovery, and a series of weather-related disasters have provided financial, strategic, and governance challenges for nonprofits.

“At the same time, the public’s trust in the nonprofit sector has ‘eroded,’ as stories of public officials and other people abusing charities have been uncovered,” according to the statement from the attorney general’s office.

The Nonprofit Revitalization Act would require charities’ boards of directors to perform active oversight over financial audits.

The nonprofit boards would be responsible for retaining independent auditors and reviewing results of the audit. Larger charities (those with more than $1 million in annual revenue) would be required to follow additional oversight procedures, according to the attorney general’s office.

That same proposal would also require full disclosure of transactions between a nonprofit and insiders who stand to benefit. The provision is intended to prevent conflicts of interest.

The nonprofit’s board of directors should also determine if the transaction is “fair, reasonable, and in organizations’ best interests,” as described in the attorney general’s statement.

When a charity engages in a substantial transaction with an insider, the board will have to consider alternatives and document its basis for choosing the insider transaction, according to the attorney general’s office.

The Nonprofit Revitalization Act would also streamline procedures for nonprofit mergers, property sales, and corporate dissolutions, according to Schneiderman.

The Executive Compensation Reform Act is intended to “rein in excessive compensation,” he added. The proposal would require the boards of nonprofits to review and approve CEO compensation.

Charities with annual revenue of more than $2 million will also have to review the compensation of their five highest-paid officers or key employees and compare it to the compensation provided at similar organizations, the attorney general said.

Contact Reinhardt at ereinhardt@cnybj.com