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New York State’s Non-Profit Revitalization Act 2013: Four Years Later

by Sallie Mullins Thompson, CPA PLLC

 

Background:

Governor Andrew Cuomo signed the Non-Profit Revitalization Act (NPRA) into law on December 18, 2013, with an effective date of July 1, 2014. The Act was created to:

  • Modernize New York’s Not-for-Profit Corporation Law;
  • Provide flexibility to boards around their operational procedures;
  • Raise board member expectations in financial, operational, and governance matters;
  • Require board supervision of the annual audit; and
  • Increase monitoring in conflict of interest practices and disclosures.

The components and requirements of NPRA were an impetus for the members/directors of non-profit boards to understand that the management of finance and operations is an integral part of their fiduciary duty and essential to safeguarding the future survival of the organization.

This article highlights several post-NPRA situations reported by local and national media that address the importance of board directors being educated on both their obligations and the NPRA.

Media Coverage:

During 2014-16, news stories in the media focused on transgressions by several very large and prominent NY non-profit corporations that were not in compliance with the NPRA:

  • With almost 75% of its programs losing money; lack of success with its for-profit IT services; the apparent ineffectiveness of board oversight; and a failure to address expenses, one non-profit was forced to declare bankruptcy. In addition, civil and criminal investigations are pending against both the organization and its directors.
  • An investigation by the Attorney General (AG) into an educational institution, triggered by a faculty/student group, alleged that a board action was not in sync with the school’s mission. The AG agreed. The entity was required to adopt governance reforms, accept the appointment of a state-mandated financial monitor, and develop a strategic plan to realign it with the mission.
  • Another AG investigation involved a foundation that issued grants to agencies associated with board trustees, one of whom committed fraud. Because of these conflict of interest actions, the organization was forced to implement governance reforms, remove several trustees, revise its bylaws, and amend its conflict of interest policy. Also, several trustees had to reimburse the foundation several million dollars; one trustee was banned for life from non-profit board service.

Summary:

These cases are only a subset of the “after-NPRA” period. However, they illustrate the consequences of non-adherence to the NPRA and board duties.

Therefore, in order to effectively govern their organizations, non-profit directors must:

  • Engage completely in their oversight responsibilities;
  • Understand the relevant federal and state laws and regulations;
  • Educate themselves on the organization’s operations, functions, and governance policies;
  • Receive information in a format that satisfies their interests and concerns; and
  • Manage risks in all areas of the entity.

Non-profit board directors who fail to fulfill the spirit of the NPRA and their duties could be subject to individual financial risk and even incarceration.

 

Sallie Mullins Thompson provides management, governance, and compliance consulting to not-for-profits (NFPs). In addition, she prepares the IRS Forms 990 and 1023 as well as various state charity-bureau filings for her NFP clients.  Sallie has served on NFP boards, since 1996, in the positions of treasurer; governance director; public policy advocacy representative; and chairperson of the finance, investments, administration, and audit committees.  Because of her ‘hands-on’ style as a board member, she has acquired a wide variety of skills and experience that benefit NFPs in fulfilling missions, serving communities, and meeting stakeholders needs and objectives.