Society Issues Counterpoint to Nonprofit Legislation
Formal Response to Spitzer Finds Middle Ground in Nonprofit Governance

By Simon Eskow

Following two conferences with state officials and careful discussion among the New York State Society of CPAs’ Board of Directors, in April the Society issued an official response to the state attorney general’s proposed legislation on governance and financial reporting of nonprofit organizations.

Members of the Society’s Not-for-Profit Organizations Committee met with officials from Attorney General Eliot Spitzer’s Charities Bureau twice in the months after Spitzer introduced his legislation in February. The committee then drafted a comment letter and presented it to the board of directors for approval at its meeting on April 23.

“We thought it vital to bring our committee letters to the board,” NYSSCPA President Jo Ann Golden said at the meeting. “There was a feeling that this was important, and the fact is, we’re delving into matters of broad-based concern, affecting many members.”

Spitzer’s proposed legislation applies strict financial reporting standards for non-profit organizations with gross revenues of $250,000 or more, a figure that has served as a rallying point for criticism of the bill. Society members decried the figure as too low a threshold for smaller not-for-profit organizations that would have to divert funds from programming to fulfill these statutory obligations. The Society also disagrees with the proposed legislation’s conflation of executive responsibilities with board member obligations—such as a requirement for the president and the treasurer to sign off on and verify reports at annual meetings.

Instead, the comment letter calls for setting the threshold at $5 million, and answers the meshing of executive and board responsibilities with new language to relieve volunteer board members of executive duties.

“The intent of the proposed legislation is to bring stronger governance oversight through expanding the activities of not-for-profit organizations’ boards of directors, an intent that the NYSSCPA endorses and supports,” the comment letter states. “Unfortunately, the proposed legislation inadvertently confuses governance oversight by not-for-profit boards of directors by placing both executive powers and governance oversight powers in the same individuals in all not-for-profits as a matter of law.”

Not-for-Profit-Organization Committee member Julie Floch drafted the original comment letter following the committee’s second meeting with the Charities Bureau of the attorney general’s office.

“They said, ‘As a result of the meeting on March 18, we can see that your group has a lot of concerns,’” said Not-for-Profit Organizations Committee Chair David Ashenfarb. “‘Why don’t we take the actual proposed legislation and go through it line by line to see if we could come to agreement on your areas of concern.’”

The NYSSCPA Legislative Committee then reviewed the draft before submitting the letter to the board, which approved it unanimously, with some alteration.

The Society averred in its comment letter that not-for-profits with $5 million gross revenue begin to afford ensuring internal controls and hiring “executive employees” to manage their affairs.

Smaller organizations, the comment letter states, either can institute formal internal controls like their larger counterparts, or have volunteer officers take direct responsibility for reports.

But the letter implies that this can only happen if the state were to buttress the Charities Bureau with a larger staff and a bigger budget to improve its enforcement capability. The Society furthermore asks the state to reimburse nonprofits who receive money from the state for the costs of establishing internal control systems and governance structures.

The internal controls, again, would not be the responsibility of the president and treasurer, but that of the “principal executive officer or officers and the principal financial officer or officers, or persons performing similar functions,” to better align Spitzer’s legislation with concepts in the Sarbanes-Oxley Act, the comment letter states.

The letter also asks that the legislation specify certain exemptions from the prohibition of certain fees for members of an audit committee, and outline the duties and size of the audit committee of not-for-profits.

(To view the entire legislation and the Society’s response letter, visit www.nysscpa.org and click on the links beneath the “Government Center” banner.)