New York’s Non-Profit Revitalization Act
As 2013 came to a close, New York State Governor Andrew Cuomo signed The Non-Profit
Revitalization Act of 2013 (“The Act”). With most of the provisions taking effect on July 1, 2014,
this is the first major reform to New York’s nonprofit law in over forty years and is important to all
nonprofit organizations across the United States.
1. If you are a nonprofit in New York State, or conduct business in New York State, or
solicit funds in New York State, you have to comply with The Act’s provisions.
2. Many parts of this legislation are being considered and expected to be passed in other
states. Every nonprofit organization needs to be aware of what soon may be affecting
them.
Nonprofit organizations that are required to comply should carefully review their current
governance, policies, and procedures documents by July 1, 2014 to make sure that they are in
compliance with the new law. Cathedral anticipates that many will need to adopt new policies
and/or overhaul their governance structure to comply with the detailed requirements of The Act.
This Topic of the Month outlines both the provisions of The Act and the changes it ushers into
New York’s nonprofit law1. This Topic of the Month concludes by providing greater detail on
four areas where all nonprofits should focus their attention.
What is the Purpose of the Non-Profit Revitalization Act?
According to New York’s Attorney General, The Act aims to “reduc[e] unnecessary and outdated
burdens on not-for-profits [while] enhancing not-for-profit governance and oversight to prevent
fraud and improve public trust.”2 The Not-For-Profit Revitalization Group recommended these
changes to “cut red tape and eliminate outdated procedures to make it easier and more efficient
for not-for-profits incorporated in New York to operate.”3
For example, The Act attempts to modernize aspects of current legislation by including the
incorporation of new technology, such as Skype, as options for boards to hold meetings.
To Whom Does The Act Apply?
The majority of The Act only applies to nonprofits that are incorporated in the state of New York.
However, the section relating to audit committees, related governance procedures, and financial
reporting to the attorney general apply to all nonprofits that have registered in New York for the
1
While this Topic of the Month is an introductory overview of The Act, it is not presented as professional legal advice. Please seek
legal counsel for questions and guidance in regard to this legislation.
2
Not-for-profit Revitalization Act Impacts New York Not-for-profits and Organizations Registered to Solicit Contributions in the State,
Kimberly A. Lowe, Frederickson & Byron, P.A. and Matthew Norris.
3
New York Legislature Passes Not-for-profit Revitalization Act: Comprehensive, Significant Changes to New York Not-for-profit
Corporation Law on Horizon, Published in the November 2013 edition of In View, a New York Society of Association Executives
(NYSAE) monthly newsletter.
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purpose of conducting charitable solicitations, even if these organizations are incorporated in
states other than New York.
When Does The Act Take Effect?
The majority of the Revitalization Act takes effect on July 1, 2014. However certain sections
within The Act have delayed effective dates.
For example, provisions prohibiting an employee from serving as chair of a board take effect on
January 1, 2015.4 Provisions addressing audit requirements take effect on January 1, 2014.5 It
is important to note that there are increases in the thresholds for providing audited financials
and these follow a three-year period.6
JANUARY 1, 2014
JULY 1, 2014
Provisions
addressing
Majority of the
auditing
Revitalization Act
requirements took takes effect.
effect.
JANUARY 1, 2015
Provisions
prohibiting an
employee from
serving as chair
take effect.
What Are The Key Changes Introduced by The Act?
There are several changes that The Act makes to previous legislation:
Replaces the four confusing “types” of nonprofit
corporations.
Modifies approval requirements for real estate
transactions.
Allows facsimile and electronic communication.
Revises provisions regarding board size.
Simplifies procedures for certain actions.
Allows education and religious corporations to merge.
Clarifies definitions.
Bars solicitation of funds if agency approval is required
until such approval is obtained.
Makes officers, directors, key employees and agents of
New York corporations subject to personal jurisdiction in
New York.
Eliminates distinction between “standing” and “special”
board committees.
Streamlines corporate filing procedures.
Prohibits any employee from being the chair of its board.
Clarifies roles and fiduciary duties.
Allows members of “committees of the corporation” to be
named pursuant to procedures set forth in the by-laws.
Raises the gross revenue thresholds for requiring audits.
Eliminates personnel access to the addresses of directors
and officers on demand.
Exempts grant writers from the category of professional
fundraiser.
Adds key employees as persons against whom action
may be brought to remedy violations of the law.
Allows electronic filing for nonprofit registrations under the Requires notice to the Attorney General when application
Executive Law and Estates, Powers, and Trusts.
for indemnification is made to court
4
See Section 73 of The Act.
See Sections 72, 130, 132 of The Act.
6
See Sections 3.3-a and 3-b of The Act.
5
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Of these numerous changes, Cathedral believes there are four changes where nonprofits
should pay extra attention: 1. The requirement of a Conflict of Interest Policy, 2. The definition of
related-party transactions as they relate to conflicts of interest, 3. The requirement for a
Whistleblower Policy, and 4. The thresholds to have financial reviews, audits, and audit
committees.

Requirement for a Conflict of Interest Policy.
Currently, nonprofits are not required under New York law to have a conflict of interest policy.
Now, under The Act, all nonprofits must adopt a conflict of interest policy that applies to
directors, officers, and key employees. A nonprofit’s conflict of interest policy must now include:






Circumstances that constitute conflicts.
Procedures for disclosing these conflicts to an audit committee or board.
A requirement that conflicted directors cannot be present for discussion and voting.
A requirement that conflicted individuals cannot attempt to improperly influence
directors.
Mandatory documentation of discussions on any conflicts of interest that arise in board
meetings.
Procedures for disclosing any related party transactions.7
The Act also requires that all directors re-sign the conflict of interest policy each year. When a
new director is selected, the individual must (prior to his/her initial election)8 disclose any and all
conflicts he/she has an individual or as an officer, director, or employee with the organization.
Prior to his/her election, they must also certify they are aware and understand the organization’s
conflict of interest policy.
Note that the disclosure for board members does not apply to potential future conflicts. This
which is dealt with under The Act’s “related party transactions” provisions, outlined in the next
section of this paper.
As a practical note, when an organization applies for IRS 501(c)(3) recognition of tax exemption,
the organization files IRS Form 1023. This form requires that the organization includes a copy
of its conflict of interest policy and thus, most organizations have a version of this in some form.
In addition, if the organization annually fills out the full IRS 990, the form asks if the organization
has a conflict of interest policy.

Related-Party Transactions
Continuing the conflict of interest policy requirement, The Act discusses related-party
transactions. A related-party transaction is any transaction, agreement, or other arrangement in
which a “related-party” has a financial interest and the nonprofit, or any affiliate of the
organization, is involved. According to The Act, a “related party” is someone that is:

Any director, officer, or key employee of the nonprofit or any affiliate of the nonprofit.
7
See NPCL Section 715-a (Section 75 of the Revitalization Act).
Paragraph (c) of NPCL Section 715-a requires all director candidates provide a certification before they are elected to the board. A
potential problem may arise when a candidate for election may not have sufficient knowledge to provide such certification before
election. See New York’s not-for-profit law in the wake of the not-for-profit revitalization act of 2013: the good, the bad and the ugly
by David W. Lowden.
8
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
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Any relative of any director, officer, or key employee of the nonprofit or any affiliate of the
organization.
Any entity in which those identified in the first or second bullet point has a 35% or
greater ownership or beneficial interest or, in the case of a partnership or professional
corporation, a direct or indirect ownership interest exceeds 5%.
The Act outlines that the nonprofit is prohibited from entering into a related-party agreement,
except when the transaction meets all of the following criteria: (1) the transaction is fair, (2) it is
reasonable, and (3) in the nonprofit’s best interests. Legal counsel should be able to assist the
organization with whether a situation meets these requirements.

Whistleblower Policy
All nonprofits that have 20 or more employees and an annual revenue in excess of $1,000,000
in the prior fiscal year must adopt a whistleblower policy.9 This policy must include the following:


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Prohibition of retaliation against any director, officer, employee, or volunteer who in good
faith reports any action or suspected action that is illegal, fraudulent, or against policy.
Procedures for a whistleblower to report any claim of this nature.
A designated employee, officer, or director tasked with administering the policy and
reporting to the audit committee or to the board.
The whistleblower policy must be distributed to all directors, officers, and employees of the
organization as well as to volunteers that provide substantial services.

Thresholds for Financial Review, Audits, and Audit Committees
Financial Audits and Filing with the Attorney General
The threshold as to whether a nonprofit has to have audited financials filed with the Attorney
General remains based upon the organization’s annual gross revenue. Under The Act, this
threshold has risen from $250,000 to $500,000. That said, this threshold will move incrementally
from its current position of $250,000 to $1,000,000 over the next several years.
From $200,000 to $500,000
in 2014
From $500,000 to $750,000
in 2017
From $750,000 to $1,000,000
in 2021
For 2014-2017, the Act outlines the following levels of financial reporting to be filed with the New
York Attorney General. Note that The Act makes a clear distinction between a CPA review
report and a CPA audit:


9
Gross revenues under $250,000: Unaudited financial statements signed by the chief
financial officer and president, or other authorized officer.
Gross revenues from $250,000-$499,999.99: Annual financial reports accompanied by
an independent CPA’s review report. The CPA’s report must be in accordance with
N-PCL Section 715-b (Section 75 of the Revitalization Act).
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
“statements on standards for accounting and review services” issued by the American
Institute of Certified Public Accountants.
Gross revenues greater than $500,000: Annual financial statements accompanied by an
independent CPA’s audit report with an opinion that the financial statement and balance
sheet fairly present the financial operations and position of the organization.
In 2017 and in 2021, these threshold levels will change. By 2021, organizations with gross
revenues between $250,000 and $1,000,000 will be required to file annual financial statements
with review reports. Organizations with gross revenues over $1,000,000 will be required to file
annual financial statements with certified audit reports. Organizations with gross revenues under
$250,000 will continue to file unaudited financial statements signed by the appropriate officer.
Two additional important items of note:
 The Attorney General is authorized under The Act to request an independent audit by a
CPA for all organizations with gross revenue over $250,000.10
o The organization’s audit must be started within 120 days of the Attorney
General’s request.
 Regardless of the organization’s size, if the Attorney General is unsatisfied with the
statements filed, he/she may require an organization to have its financial statements
audited, even if the gross revenue is below the threshold limit. If the Attorney General
remains unsatisfied, he/she has the ability to request additional audits.
Audit Committees
For those organizations that are required to file audited financials, The Act indicates the
nonprofit must maintain an audit committee and perform certain audit functions.11 The board
may choose who will serve as the audit committee.
Whoever serves in the audit committee capacity must:

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Oversee the accounting and financial reporting processes of the organization and the
audit of its financial statements.
Annually retrain an independent auditor.
Review the results of the audit with the independent auditor, including the management
letter.
Oversee the adoption and implementation of, and compliance with, any conflict of
interest policy or whistleblower policy. The exception here is if another committee of
independent directors exists for this reason.12
If the nonprofit’s revenues exceed $1,000,000, than the audit committee or the independent
directors on the board must additionally:


Prior to the audit’s commencement, review the scope and planning of the audit with the
independent auditor.
With the independent auditor, review and discuss:
o Any material risks and weaknesses in internal controls identified by the auditor.
10
See Section 172-b of the Executive Law. (Sections 3, S-a and 3-b of The Act).
See N-PCL Section 712-a of the N-PCL (Section 72 of The Act).
12
See New York’s not-for-profit law in the wake of the not-for-profit revitalization act of 2013: the good, the bad and the ugly by
David W. Lowden.
11
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Any restrictions on the scope of the auditor’s activities or access to requested
information.
o Any significant disagreements between the auditor and management.
o The adequacy of the organization’s accounting and financial reporting processes.
Annually consider the performance and independence of the auditor.
Report the audit committee’s compliance of these activities to the board.13
o
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Conclusion
The Non-Profit Revitalization Act of 2013 modernizes New York’s nonprofit laws. It enhances
both governance and oversight over nonprofit organizations and also establishes new
restrictions and requirements in the area of governance. These may require certain
organizations to make significant and, in some cases, challenging changes to their governance
structure. Now that The Act has been approved and goes into effect this year, New York’s
nonprofit organizations, those that conduct business in the New York, and those that solicit
funds in New York, may need to adopt additional policies and procedures and should carefully
review their governance documents to make sure that they are in compliance with the new law.
Additional Information:
 The complete New York Non-Profit Revitalization Act of 2013 can be reviewed here:
http://assembly.state.ny.us/leg/?default_fld=&bn=A08072&term=&Summary=Y&Actions=
Y&Text=Y
Kimberly Reeve is a Managing Director in the New York office, Michelle Fitzgerald is a former
Senior Associate in the New York Office, and Rebecca Tingstrom, Esq. is a former Associate in
the New Jersey office of Cathedral Consulting Group, LLC. For more information, please visit
Cathedral Consulting Group LLC online at www.cathedralconsutling.com or contact us at
info@cathedralconsulting.com.
*This memorandum is provided with the understanding that Cathedral Consulting Group, LLC is
not rendering legal, accounting, or other professional advice or service. Professional advice on
specific issues should be sought from an accountant, lawyer, or other professional.
**To ensure compliance with requirements imposed by the IRS in Circular 230, we inform you
that any tax advice contained in this communication (including any attachment that does not
explicitly state otherwise) is not intended or written to be used, and cannot be used, for the
purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing
or recommending to another party any transaction or matter addressed herein.
13
Id.
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