Not-for-Profit Draft Bill Adopts Aspects of Sarbanes-Oxley
Spitzer Calls for Certification of Nonprofits’ Financial Statements

In a bid to better protect not-for-profits against financial fraud, New York State Attrney General Eliot Spitzer has issued a draft bill that would apply certain principles of the Sarbanes-Oxley Act to the not-for-profit sector.

The draft bill comes on the heels of remarks the attorney general made during the Foundation for Accounting Education’s Nonprofit Conference in January, when he said that the magnitude of assets of the state’s not-for-profit organizations necessitates imposing legislative controls.

As part of Spitzer’s Corporate Fraud Prevention Initiative of 2003, the draft bill—one of six in the package—includes provisions to:

• Require the president and treasurer of every not-for-profit to sign and certify to the accuracy of the corporation’s annual report, whether or not the report is certified by an independent public or certified public accountant or firm of such accountants.
• Require the president and treasurer of not-for-profits with over $250,000 in gross revenues, or not-for-profits that compensate their president or treasurer, to also certify to the accuracy of the financial statements and other financial information included in the annual report and to the sufficiency of the corporation’s internal controls.
• Authorize the attorney general to bring action for removal of directors and officers for a corporation’s willful or persistent failure to file complete and accurate reports required by law.
• Require the board of not-for-profits with annual revenues over $250,000 in any fiscal year (if the certificate of incorporation or the bylaws so permit) to designate an executive committee and an audit committee consisting of three or more board members. The audit committee, and the entire board of a not-for-profit whose certificate of incorporation or bylaws prohibit the appointment of an audit committee, shall be directly responsible for the appointment, compensation and oversight of the work of any registered public accounting firm employed by that corporation for the purpose of preparing or issuing an audit report or related work. Each registered accounting firm shall report directly to the audit committee or entire board.
• Prohibit members of the audit committee from accepting any consulting, advisory or other compensatory fee from the corporation, other than in their capacity as a member of the audit committee, board of directors or other board committee; and require that a member of the audit committee shall not have participated in any interested-party transactions within the previous year.
• Require each audit committee, or board (where an audit committee is prohibited by certificate of incorporation or bylaws), to establish procedures for handling complaints received by the corporation regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission of concerns by employees of the corporation regarding questionable accounting, auditing or other financial matters.

The draft bill also includes extensive new provisions addressing governing contracts, compensation of directors and officers, and indemnification of officers and directors, among other items. The bill can be found at www.nysscpa.org on the home page under the “Gov’t Center.”