What does your nonprofit need to do to comply with the Nonprofit Revitalization Act? Part 1
In sum, a nonprofit must (i) develop a conflict of interest policy or confirm that its current policy complies with the new regulations, (ii) develop a whistleblower policy, (iii) ensure that its financials meet the revised auditing requirements and (iv) ensure that it complies with the audit oversight policies. Each of these is discussed briefly below. A copy of the Act is available at http://open.nysenate.gov/legislation/bill/A8072-2013
Conflict of Interest Policy.
The Act requires a nonprofits have a conflict of interest policy governing directors, officers, and key employees. In addition, the Act requires that prior to the election of any director, and annually thereafter, directors must complete, sign, and submit a statement identifying any potential conflict. The conflict of interest policy must include:
a definition of circumstances that constitute a conflict of interest;
procedures for disclosing a conflict of interest to the audit committee or the board;
a requirement that the person with a conflict of interest not be present at or participate in board or committee deliberations or voting on the matter giving rise to such conflict;
a prohibition against any attempt by a conflicted person to influence board deliberations;
documentation procedures for detailing the existence and resolution of the conflict; and
procedures for disclosing and addressing related-party transactions.
2. Whistleblower Policy.
The Act mandates that nonprofits with 20 or more employees and annual revenue in the prior fiscal year in excess of $1,000,000 institute a whistleblower protection policy. The whistleblower policy must protect any director, officer, employee, or volunteer who in good faith reports an action or suspected action that is potentially illegal, fraudulent, or in violation of any adopted policy of the corporation from retaliation. The policy must include:
procedures for reporting violations or suspected violations;
a designated employee, officer, or director tasked with administering the policy and reporting to the audit committee or other committee of independent directors or, if there are no such committees, to the board; and
a requirement that the policy is distributed to all directors, officers, employees, and volunteers who provide substantial services to the nonprofit.
3. Financial Reporting
The Act outlines a sliding scale for financial reporting based upon gross revenue. Each of the following are required to be filed annually.
Annual Revenue Reporting Requirement
0-$250,000 Unaudited financial reports
$250,000-$500,000 Financials reviewed by an independent certified public accountant
$500,000 or more Financials audited by an independent certified public accountant
4. Audit Committee
The Act designates certain responsibilities to an audit committee or to the independent directors of the board. If your organizations annual revenue is in excess of $1,000,000 the audit committee or board must: (i) review the scope of the audit prior to its commencement; (ii) at the conclusion of the audit, (a) review any material weaknesses in internal controls identified by the auditor, (b) any restrictions that were placed upon the auditors activities, (c) any disagreements with the auditor, and (d) the adequacy of the nonprofits accounting and financial reporting processes; (iii) annually consider the performance and independence of the auditor; and (iv) report such activities to the board.
The audit committee also is charged with overseeing adoption, implementation, and compliance with the conflict of interest and whistleblower policies.
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