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February 28, 2012

Further Changes on the Horizon for Not-for-Profits

On February 16, New York Attorney General Eric T. Schneiderman released a report prepared by the Leadership Committee for Nonprofit Revitalization, a group composed of 32 leaders in the not-for-profit community who were charged last year with "developing proposals for reducing burdens on the nonprofit sector while strengthening governance and accountability." The plan includes proposed legislation intended to eliminate outdated and costly burdens on not-for-profits, strengthen oversight and accountability, and reaffirm the Attorney General's commitment to policing fraud and abuse. Mr. Schneiderman also announced a number of partnerships with the business and academic communities to help not-for-profits address financial and strategic challenges by enhancing the quality of their governance.

The report entitled "Revitalizing Nonprofits/Renewing New York" provides a series of 38 recommendations for not-for-profit organizations, focusing on three categories: reducing burdens on not-for-profit organizations; enhancing public trust and board governance; and practical solutions to build better governing boards. Some key reforms will reportedly include:

  • Expediting formation of not-for-profits in New York and approval of key not-for-profit transactions;
  • Modernizing outdated requirements, including allowing the use of technology in certain circumstances;
  • Requiring that boards provide enhanced and independent oversight of executive compensation;
  • Increasing board responsibilities to oversee financial audits;
  • Enhancing the Attorney General's tools to police self-dealing and other forms of corruption; and
  • Requiring that not-for-profits adopt conflict of interest and whistleblower policies.

Many of these ideas are not new, but the proposals seek to make law ideas that have long been thought of as best practice. The Attorney General also announced two new initiatives designed to assist not-for-profits in improving their governance, including a partnership with New York's business community to assist in the recruitment of new directors and increased training opportunities for directors.

When considered with Governor Cuomo's government task force on not-for-profit executive compensation and executive order related to the same, it seems certain that changes are on the horizon for New York State not-for-profits. It is unclear as to what final laws and regulations will look like in New York, but it behooves every not-for-profit to undertake a review of its current practices including the following:

  • its executive compensation process;
  • its internal control and external audit processes and their oversight;
  • its conflict of interest policies and their implementation; and
  • its whistleblower policies.

Hiscock & Barclay has extensive experience working with not-for-profit entities, assisting with reviews of current practices, updating policies and procedures and providing training for management and Boards of Directors on topics such as responsibilities and duties, conflicts of interest and ethics. Please contact David Glasel, Melissa Zambri or any member of the Firm's Health Care and Human Services Practice Area for further information.

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