7/1/14: COMPLIANCE FOR CHARTER SCHOOLS AND OTHER EDUCATION CORPORATIONS WITH THE NEW YORK STATE NONPROFIT REVITALIZATION ACT

It came to my attention (on an unrelated matter) that significant changes to Not For Profit laws go into effect July 1, 2014 that will effect many Charter schools and other Education Corporations in NYC and NYS prompting professionals in the industry to issue last minute reminders and guidance about the measure.

Unfortunately, I dont have the time to reinvent the wheel and conduct research from scratch, so I will rely on info from other sources to explain this Act more fully. 

The full report from the NYS Attorney General office is here.  

Summary of the Nonprofit Revitalization Act of 2013 from AGs website:

The Nonprofit Revitalization Act brings reform in two main areas:

Enhancing nonprofit governance and oversight to prevent fraud and improve public trust; and
Reducing unnecessary and outdated burdens on nonprofits.
The Nonprofit Revitalization Actgives New York the strongest nonprofit governance regime in the country. The law:

Ensures sound financial management by requiring that charities’ boards perform active oversight over financial audits. Boards will be responsible for retaining independent auditors and reviewing results of the audit. At larger charities (over $1 million in annual revenue), the board or audit committee will be required to follow additional oversight procedures.

Prevents conflicts of interestby requiring that transactions between a nonprofit and insiders who stand to benefit be fully disclosed and that nonprofit boards determine they are fair, reasonable, and in organizations’ best interests. When a charity engages in a substantial transaction with an insider, the board will have to consider alternatives and document its basis for choosing the insider transaction.

Strengthens the Attorney General’s power to police fraud and abuse by granting clear power to bring judicial proceedings to unwind interested-party transactions.

Ensures board independenceby prohibiting any employee of a nonprofit from also serving as chair of its board.

Promotes good governanceby requiring all nonprofits to adopt conflict of interest policies and those with over $1 million in annual revenue and 20 or more employees to adopt whistleblower policies.
Attorney General Schneiderman’s Nonprofit Revitalization Actalso streamlines and modernizes New York law to remove unnecessary burdens, save taxpayer dollars, and help nonprofits focus resources on providing services by:

Streamlining procedures for nonprofit mergers, property sales and corporate dissolutions, so that funds needed for ongoing charitable programs are not wasted on unnecessary red tape;

Modernizing laws to allow nonprofits to conduct their affairs more efficiently,such as permitting nonprofits to use email and video technology for meetings and allowing boards to delegate the approval of small transactions to committees; and

Eliminating unnecessary and costly requirements for nonprofits forming in New York,saving nonprofits money and time and allowing them to commence charitable programs more quickly.

These changes are discussed in an alert provided by law firm Skadden et al piece, apparently Conflict of Interest Policy, Financial Oversight  and Whisteblower are some areas to be noted.

Here is what NYSED has to say about the Act in a blurb located on its website:

“Non-Profit Revitalization Act of 2013

The provisions of the Non-Profit Revitalization Act of 2013 (L.2013, Ch. 549) generally become effective on July 1, 2014 and, among other things, include amendments to the Not-for-Profit Corporation Law and Education Law that will change the process for filing certificates of incorporation and other corporate documents with the Department of State, including requirements for obtaining Regents authorization and/or the consent of the Commissioner of Education to such fillings.

The State Education Department intends in the near future to revise the contents of this website to conform to the Act’s provisions.”

And NYSED in a full Memo sent to Charters said about the Act:

April 4, 2014

To: Boards of Trustees of Charter Schools Authorized by the NYS Board of Regents

From: Leslie E. Templeman, Assistant Counsel
Charter School Office
NYS Education Department

Subject: New York Non-profit Revitalization Act of 2013

On December 18, 2013, Governor Cuomo signed into law the New York Non-profit Revitalization
Act of 2013, which made changes to the New York State Not-for-Profit Corporation Law and other laws,
which affect non-profit organizations. Some provisions of this new law, most of which become effective
on July 1, 2014, apply to NYS education corporations, including charter schools.

Charter school Boards of Trustees should consult with their legal counsel to determine what, if
any, action(s) may need to be taken by the Board between now and July 1, 2014, to ensure compliance
with this new law. Of particular interest to charter schools is Section 75 of the law which addresses
conflict of interest and whistleblower policies. Adopting or revising policies to address the requirements
of the law will not constitute material charter revisions that require approval by the Regents or the
Commissioner but copies of any new or revised policies adopted by the Board of Trustees should be
provided to the School’s liaison in the Charter School Office.

Here is the full text of the legislation (A.8072), which was signed into law as Chapter 549 of the
Laws of 2013.

Please note: Pursuant to Section 2854(1)(e) of the NYS Charter Schools Act, charter schools are specifically subject to Article 6 (Freedom of Information Law) and Article 7 (Open Meetings Law) of the NYS Public Officers Law. To the extent that there may be inconsistencies between some provisions of the Not-For-Profit Corporation Law and those sections of the Public Officers Law, the provisions of the Public Officers Law govern and are controlling.

The Lawyers Alliance has written a guidance piece about the Act for Charter Schools here. 

According to attorneys Cullen and Dykman,  a hallmark of the Act is that 

“Thresholds for Financial Reporting have been Raised”:

Charitable organizations which solicit contributions from New Yorkers or receive government grants must register with the AG and annually file financial reports.  Currently, organizations that receive in any fiscal year $100,000 or less in gross revenue and support must file an unaudited financial report (on forms prescribed by the AG).  Organizations that receive in any fiscal year more than $100,000 but not more than $250,000 in gross revenue and support must file an annual financial report accompanied by an annual financial statement which includes an independent CPA review report.  Organizations that receive in any fiscal year more than $250,000 in gross revenue and support must file with the AG an annual written financial report accompanied by an annual financial statement which includes an independent CPA audit report. The Act increases the revenue thresholds for reporting as shown in the below chart.  In addition, the Act requires the payment of a $25 filing fee with each filing and authorizes the AG to create rules for electronically filing such reports. Currently, all filings must be submitted in paper form.  

Effective Date

Unaudited Financial

Report

CPA Review Report[iii]

CPA Audit Report

July 1, 2014

$250,000 or less

More than $250,000 but not more than $500,000

More than $500,000

July 1, 2017

$250,000 or less

More than $250,000 but not more than $750,000

More than $750,000

July 1, 2021

$250,000 or less

More than $250,000 but not more than $1,000,000

More than $1,000,000

In related news, in this April 2014 piece Charter School Executive Profit, Alan Singer talks about the profits “Non Profits” Execs make in the Charter industry, an unknown truth. Will the Act incidentally curtail such abuses? Only time will tell. 

 

 

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