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November 23, 2011

Scrutiny Grows of New York State Not-for-Profits

As many providers know, the State of New York Governor's Task Force on Not-for-Profit Entities has issued numerous letters to not-for-profit corporations across New York State, requesting a laundry list of information aimed at targeting the compensation packages of individuals at the respective corporations. Among the information requested is information about compensation, bonuses and incentives paid to individuals, as well as information about board involvement in the setting of compensation and whether an outside analysis has been performed to determine the reasonableness of the compensation paid given the size and complexity of job duties. While some of the information requested is included in an organization's submission of IRS Form 990, the letter does request information for a broader range of individuals. The list also includes a question asking the organization to justify its not-for-profit status.

Governor Cuomo established the Task Force, led by the New York State Inspector General, Secretary of State, Medicaid Inspector General, Superintendent of the Department of Financial Services, Chairmen of the Senate and Assembly Government Operations Committees, and Commissioners from many health care and health care-related New York State agencies, to review executive and administrator compensation at all levels in not-for-profits. It will also provide recommendations for State agency policies and procedures that will help ensure excessive compensation is not paid in the future. The Task Force was formed in response to reports of excessive salaries and compensation packages for some executives involved with organizations providing services to the developmentally disabled.

The letter does not have the force of law, but it should be taken very seriously. Members of the Task Force are in a position to have a significant influence on the not-for-profits under review. Not-for-profit corporations should consider:

  1. ensuring counsel is involved in any response to a letter or follow up request from the Task Force. Many compensation arrangements, particularly in multi-corporation systems, can be complex, and providers should be prepared to explain any ambiguities to the Task Force in a clear and cohesive manner as questions arise. In addition, some of the questions and terms in the letter are ambiguous themselves and subject to interpretation; 
  2. ensuring that the organization has appropriate policies regarding best practices for determining the appropriateness of executive or board compensation and also documenting those decisions; and 
  3. ensuring the Board is aware of the Task Force and the receipt of any Task Force letter, and involved in any response.

In addition, we also note that Boards of Directors have been under additional scrutiny regarding their involvement in and knowledge of: an organization's compliance program and related activities; quality assurance or improvement program and related activities; and any inspections, audits or reviews by regulating agencies. Boards of Directors have been required to share meeting minutes with regulators to show Board involvement in these activities. Should you have questions about any of these issues, consult your health care counsel.

Hiscock & Barclay, LLP has experience in assisting not-for-profit providers in these and related matters. Should you require assistance, please contact David P. Glasel, Chair of the Firm's Health Care and Human Services Practice Area, or Melissa M. Zambri, Partner in the Firm's Health Care and Human Services Practice Area.


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