By Nicole Millman-Falk, CAE
Click image to enlargeJason Lilien, Partner, Zuckerman Spaeder LLP discusses the key points of the Nonprofit Revitalization Act.
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New York’s Nonprofit Revitalization Act was the result of an attempt to update an outdated, overly regulated system governing nonprofits since 1969. The aim of the legislation was to reduce burdens on the nonprofit sector and to restore public trust in the nonprofit sector. "There was a proverbial cloud that was hovering over nonprofits, particularly with government-funded organizations," explained Jason Lilien, principal author of the legislation, who spoke at NYSAE’s October luncheon on the new law. Because of this, there was increased scrutiny by the media, by the government, and by the public. In addition, most of New York State’s 103,000 nonprofits have budgets of less than $1 million. Before the law was enacted, some of the regulatory requirements were burdensome to these smaller organizations.
Among the major changes addressed by the legislation are: thresholds for audit requirements; real property transactions; mergers, acquisitions, and dissolutions; electronic meeting notification and voting by board members; as well as nonprofit classification.
One of the intents of the new law is to get boards more actively engaged in their nonprofits. "The problem in New York and around the country is that you have volunteer board members with different skill sets and different commitment levels," said Lilien. "Unlike in the for-profit sector, you have historically passive boards and dominant CEOs or executive directors. For this system to work, it is very important for boards to understand their responsibilities, have a good relationship with their executive directors, and take their jobs seriously."
The new statute creates a set of board responsibilities. At the very least, explained Lilien, nonprofit boards need to oversee their finances and investments, including having systems in place to deal with related party transactions (These are financial transactions in which the nonprofit is a participant on one side and on the other side is a director, officer, key employee, or family member who is directly benefitting from that transaction). The new law requires all organizations to evaluate the transaction before it is entered into to ensure that it is fair, reasonable, and of valuable to the organization.
"The goal here is that when you give money to an organization that there is a system in place to oversee those funds," said Lilien.
The new Nonprofit Revitalization Act also requires all nonprofits to have a conflict of interest policy. "I think New York State is the only state that has one," said Lilien. "If your conflict of interest policy or disclosure form doesn't ask questions about these related party transactions, it should so that your board and/or committee can evaluate those transactions."
The new law also requires nonprofits with more than 20 employees and budgets of more than $1 million to have an established whistleblower policy, which allows officers, directors, volunteers, and staff to report wrong-doing. The policy must include a mechanism for reviewing the conflicts. Organizations need a person tasked internally with overseeing this function and either the board or a committee structure who can evaluate these complaints.
Additional details about the act can be viewed online at www.ag.ny.gov/press-release/ag-schneidermans-nonprofit-revitalization-act-signed-law.
Setting forth a baseline of responsibilities betters the nonprofit and the nonprofit sector. "One of the key exciting next steps in this process is to work with the nonprofit world to help people to understand what it means to be a good board member," said Lilien.
To that end, a new organization (charityStrong) will help nonprofits build strong and diverse boards through an innovative recruitment program and easily accessible director training. The organization was started with a grant from the New York Attorney General’s Office and private funding. Its purpose is to provide free access to director education, addressing basic skill sets that go beyond a board member’s legal requirements.
"charitiesStrong will serve as a model for rest of country about how to improve governance," said Lilien. DirectorsU will provide an online portal to educational, as well as face-to-face classes at universities around the state. The launch is scheduled for early next year. Additional information can be viewed online at www.charitystrong.com.
"The reality is that the laws were not very good prior to July 1, 2014," concluded Lilien. "But governance and improved governance cannot be mandated," said Lilien. "It ultimately comes down to nonprofit boards. They must improve their skills sets so they are ready to implement the changes in the law."
Nicole Millman-Falk, CAE, is President of Millman-Falk Communications, LLC, providing strategic communication services for trade associations, professional societies, and donor-based organizations. In addition to her own company, she serves as Editor for Apogee Publications, which provides turnkey association newsletters, magazines, and membership directories. She is Editor of NYSAE’s InView and is Chair of this year’s Awards Committee. She can be reached at 201-652-1687; email@example.com; or through her website at www.millmanfalkcommunications.com.