Nonprofit Revitalization Act of

2013

Fred M. LaMarca CPA, CFP®Fred M. LaMarca CPA, CFP®

Zoltan Kemeny, CPAZoltan Kemeny, CPA

Nonprofit Revitalization Act

Most Provisions take effect on July 1, Most Provisions take effect on July 1, 2014. 2014.

Changes in Act fall into two categories: 1.1. Relieving regulatory burdens on nonprofitsRelieving regulatory burdens on nonprofits

2.2. Improving compliance with governance issues. Improving compliance with governance issues.

Enhanced Audit Requirements

Prior $250,000 annual Prior $250,000 annual revenue limit has revenue limit has been increased to been increased to $500,000, with $500,000, with subsequent increases subsequent increases to $750,000 in 2017 to $750,000 in 2017 and $1,000,000 in and $1,000,000 in 2021. 2021.

Review report Review report requirement annual requirement annual revenue limit revenue limit increases from increases from $100,000 to $250,000.$100,000 to $250,000.

Attorney general can Attorney general can demand an audit upon demand an audit upon 120 days notice. 120 days notice.

Dollar Thresholds for Audits haveDollar Thresholds for Audits have ChangedChanged

Audit Committees

• Requires to retain/review Requires to retain/review the independent auditor.the independent auditor.

• Review the results of the Review the results of the audit and the management audit and the management letter.letter.

Audit or similar independent committees Audit or similar independent committees are required to oversee the accounting and are required to oversee the accounting and financial reporting process of the NPO and financial reporting process of the NPO and the audit of the NPO’s financial statements.the audit of the NPO’s financial statements.

Additional Requirements for nonprofits with

annual revenue in excess of

$1,000,000 Review with the auditor the Review with the auditor the scope and planning of the scope and planning of the audit prior to its audit prior to its commencement. commencement.

Governing Body Must:

Any material risks and weaknesses in internal controls Any material risks and weaknesses in internal controls identified by the auditor identified by the auditor

Any restrictions on the scope of the auditor’s activities or Any restrictions on the scope of the auditor’s activities or access to requested information.access to requested information.

Any significant disagreements between the auditor and Any significant disagreements between the auditor and management. management.

The adequacy of the nonprofit’s accounting and financial The adequacy of the nonprofit’s accounting and financial reporting process. reporting process.

Annually consider the performance and independence of the Annually consider the performance and independence of the auditor. auditor.

Audit committee needs to report its findings to the full Board Audit committee needs to report its findings to the full Board of Directors. of Directors.

Review the following upon completion of

Audit:

Independence Under The Act:

An Independent Director means a Director who:An Independent Director means a Director who:

1.1. Is not, and has not, within the last 3 years been Is not, and has not, within the last 3 years been an employee of the nonprofit. an employee of the nonprofit.

2.2. Does not have a relative who is or has been Does not have a relative who is or has been within the last 3 years a key employee of the within the last 3 years a key employee of the nonprofit . A key employee is defined as a person nonprofit . A key employee is defined as a person who is in a position to exercise substantial who is in a position to exercise substantial influence over the affairs of the non-profit.influence over the affairs of the non-profit.

The act sets forth specific requirements The act sets forth specific requirements for director independencefor director independence

3.3. Has not received, and does not have a relative Has not received, and does not have a relative who has received more than $10,000 in who has received more than $10,000 in compensation during any of the last 3 years. compensation during any of the last 3 years.

4.4. Is not a current employee and does not have a Is not a current employee and does not have a relative who has a financial interest in an relative who has a financial interest in an entity that has made payments to or receives entity that has made payments to or receives payments from the non-profit in an amount payments from the non-profit in an amount which, in any of the last 3 fiscal years, which, in any of the last 3 fiscal years, exceeds the lesser of $25,000 or 2% of the exceeds the lesser of $25,000 or 2% of the entity’s consolidated gross revenues. entity’s consolidated gross revenues.

Independence Under The Act:

Conflict of Interest Policies The act requires all non-The act requires all non-

profits to adopt a conflict profits to adopt a conflict of interest policy and of interest policy and requires each director to requires each director to submit a completed submit a completed conflict of interest conflict of interest statement annually to the statement annually to the audit committee. audit committee.

Specific steps need to Specific steps need to be taken to clarify that be taken to clarify that any participation by the any participation by the conflicted person is conflicted person is prohibited and must be prohibited and must be documented in minutes. documented in minutes.

Related Party Transactions

A nonprofit is prohibited from entering into these A nonprofit is prohibited from entering into these transactions with an officer, director, or key transactions with an officer, director, or key employee unless the Board first determines that the employee unless the Board first determines that the transaction is fair, reasonable, and in the non-profit’s transaction is fair, reasonable, and in the non-profit’s best interest best interest at the time of such determination.at the time of such determination.

Related party transactions are not prohibited by the Act but significantly raises the bar on these

transactions

This generally means the Board has to have This generally means the Board has to have considered alternative transactions to the extent considered alternative transactions to the extent available, must be approved by at least a majority available, must be approved by at least a majority vote of the Board of the Directors and vote of the Board of the Directors and contemporaneously document these considerations contemporaneously document these considerations in writing. in writing.

Related Party Transactions

Board CommitteesSub committees Sub committees consisting of elected consisting of elected board members can act board members can act on behalf of the Board on behalf of the Board (Executive Committees) (Executive Committees) as long as they report to as long as they report to the full board. the full board.

Committees which may Committees which may include Board and non-include Board and non-board members, but act board members, but act in an advisory function in an advisory function may may notnot act on behalf of act on behalf of the board. the board.

Whistleblower Policies

The policy must set forth: The policy must set forth: Reporting procedures for Reporting procedures for suspected violations of laws suspected violations of laws or corporate policy. or corporate policy. Designation of a Designation of a corporate administrator with corporate administrator with responsibility to report to the responsibility to report to the audit committee. audit committee.

A copy of the policy needs A copy of the policy needs to be distributed to all to be distributed to all officers, directors, officers, directors, employees, and volunteers. employees, and volunteers.

Any NPO with 20 or more employees and annual revenues of over $1,000,000 in the

prior year must adopt a whistleblower policy.