Will New York Lead the Way In Changing Nonprofits?

By: Eugene Fram

In January, Governor Andrew Como place a salary state funded cap of $199,000 for nonprofit executives at state funded service providers.  On February 17^th, his attorney general, Eric Schneiderman, made the follow legislative proposals, based on a blue ribbon committee appointed in 2011.

• Prohibit chief executives and other paid employees from serving as board chairs of their own boards to infuse greater trust in nonprofit boards
• Challenged boards to become more transparent and to improve their oversight and independence.
• Require independent directors to annually certify that organization executives’ compensations are reasonable and in line with their duties.
• Where an outside audit is conducted, an audit committee will be mandated to review the financial reports.
• The state should mandate the percent of board member that must be independent, along with the criteria for determining independence.
• The attorney general’s office and nonprofit organizations would be given more tools to assess fraud and financial abuse.
• Conflict-of-Interest and whistleblower policies would be required for all nonprofit organizations.

In addition, I would suggest that all directors become familiar with an IRS related statute, “Intermediate Sanctions Act” (See Fram & Spaull below).  I perceive that few nonprofit directors are aware of the personal perils that can emanate from this act.

With 103,000 nonprofits registered in New York, how long will it take other states to consider similar legislation to reform their nonprofits?

Sources:

Michael Virtanen (2012) “Proposed relegations to monitor nonprofits,” Associated Press, February 17^th.

Jeremy Smerd & Miriam Kreinin Souccar (2012) “Sneiderman proposes nonprofit overhaul, http //www.crainsnewyork.com/article20120216/POLITICS/120219920

Eugene Fram & Bruce Oliver (2010) “Want to avoid fraud? Look to your board, Nonprofit World, September/October, pp18-19.

Eugene Fram & Elaine Spaull (2001) “Expectations for nonprofit boards are changing,” Nonprofit World, May-June, pp. 14-17.