Charities Bureau Presentation Rotary Club of New York January 25, 2018 Michele L. Abeles Assistant Attorney General, Charities Bureau Office of the Attorney General

New York State Attorney General Our Commitment “OUR JOB AS A REGULATOR ISN’T JUST TO GO OUT AND CATCH BAD GUYS, IT’S ALSO TO HELP THE GOOD GUYS CONDUCT THEIR BUSINESS EFFICIENTLY AND EFFECTIVELY.” New York State Attorney General Eric T. Schneiderman

Who Are You? Board Members? Executive Directors? Chief Financial Officers? Other Employees? Volunteers? Attorneys? Accountants? Anyone else?

Who Are You? 1.25 million employees 18 per cent of total private work force in 2010, (Johns Hopkins study) more than $57 billion in wages (2010) 74,000 NY Charities in IRS records (does not include houses of worship) 80,000 registered charities (includes non-NY)

What do Supporters Look For? Programs that further an organization’s mission Financial information Reports filed with the Attorney General and the IRS and posted on the web Compliance with filing requirements Funders regularly contact the Charities Bureau Our webmaster reports that the Charities Bureau’s web page gets the most hits Reports by “watchdog” organizations BBB Wise Giving Alliance Charity Navigator Charity Watch

Who Are We? Charities Bureau Lawyers Accountants Legal Assistants Registry – Charities – New York City Fundraisers – Albany Regional Offices – 13 in the State NYC: 4 sections

HOW WE HELP CHARITIES Laws and Regulations Searchable Public Registry of Charities Guides for Governance, Fundraising and Transactions Forms and Instructions for Registration Links to Helpful Websites Announcements and Press Releases www.charitiesnys.com

Our Responsibilities Four statutory responsibilities: Protect the charitable purpose and mission Prevent misuse of charities’ assets for private benefit Collect and publish useful information about charitable organizations http://www.charitiesnys.com/RegistrySearch ) Protect vulnerable victims of charitable solicitation (Pennies for Charity)

DUTIES OF BOARD MEMBERS Define mission and assure that it is promoted Select and support executive director and review performance Assure organizational planning and adequate resources Approve annual budget Assure that organization has systems/controls to manage assets properly and comply with the law

Protecting Charities’ Assets and Endowments Investing wisely-New York Prudent Management of Institutional Funds Act (NYPMFA) - written investment policy, delegation (https://www.charitiesnys.com/pdfs/nypmifa-guidance2011.pdf) Reviewing wisely-IRS 990 filings, independent auditor reports, management letters Responding to crises and bad acts Sunrises (new projects) and sunsets (time to discontinue or merge old activities) Protecting restricted endowments

Responding to Embezzlement Investigation of events Notice, engagement of board Communication strategy-internal, donors, external Referral for consideration of prosecution Insurance coverage and notice/claim to insurer Recovery from perpetrator Address risks going forward, needed policies and procedures with auditor Tell the Attorney General If AG writes your organization, please respond

Duties of Board Members Follow the Governance Provisions of New York Law which require: Formal conflict of interest policy consistent with statutory requirements Formal whistleblower policy consistent with statutory requirements (over 20 employees and $1 million in revenue) Independent Audit Committee if the organization is required to file an audit with the Charities Bureau (no member is employee of organization)

Conflict of Interest Policy Conflict of interest policy must include: Definition of circumstances constituting a conflict Procedures for disclosing a conflict Requirement that person with a conflict cannot vote or deliberate on the matter resulting in the conflict Prohibition against attempts by conflicted individual to influence the deliberation or vote

Conflict of Interest Policy (cont.) Requirement that existence and resolution of the conflict be documented Procedures for disclosing and documenting related party transactions in compliance with law Requirement that board members sign a conflicts statement before serving on board and annually

Related Party (conflicts) Transactions Person who will benefit from transaction may not be present at or participate in board or committee deliberation or vote But - board or committee may request information, background or response to questions before deliberations or voting Covers compensation to directors, officers, employees IRS-990 Asks - Did the process for determining compensation include a review and approval by independent persons, comparability data, and contemporaneous substantiation of the deliberation and decision?

Whistleblower Policy Policy must include procedures for: Reporting violations of law and other wrongdoing Maintaining confidentiality of the reporting individual Ensuring that there is no retaliation against the reporting individual The policy must be distributed to all officers, directors, employees and volunteers NOTE - though required for organizations with revenue over $1 million and 20 or more employees, smaller organizations may want to consider adopting a whistleblower policy

Audit Committees Organizations required to file an audit with the Attorney General must have an audit committee made up of independent members of the board Or the board must fulfill the audit oversight responsibilities with only independent members of the board participating

Audit Threshold Raised Many smaller organizations no longer have to file a CPA’s audit report New audit thresholds: Effective July 1, 2014 Review - $250,000 - $500,000 Audit – over $500,000 Effective July 1, 2017 Review - $250,000 - $750,000 Audit – over $750,000 Effective July 1, 2021 Review - $750,000 - $1,000,000 Audit – over $1,000,000

Audit Committees The audit committee or independent members of the board must Retain or renew the retention of the CPA to conduct the annual financial statement audit, Review the completed audit with the CPA, and Review with the CPA the communications to those charged with governance (including the management letter) resulting from the audit.  

Audit Committee If the organization has (or had in the prior year) over $1 million, the audit committee or independent members of the board must also:  Before the audit, review with the CPA its scope and planning;  When the audit has been completed, review and discuss with the CPA: Material risks and weaknesses in internal controls identified ; Any restrictions on the scope of the CPA’s activities or access to requested information; Any significant disagreements between the CPA and management; and The adequacy of accounting and financial reporting processes of the organization; and  Annually review the performance and independence of the CPA  

Duties of Board Members NOTE – IRS 990 questions about governance include: Number of voting board members & differences in voting rights Number of independent voting members of the board Family relationships of officers, directors & key employees Delegation of management duties to a management company Changes to governing documents since the last 990 was filed Significant diversion of the organization’s assets? Contemporaneous documentation of board/committee meetings

Duties of Boards of Directors NOTE – IRS 990 questions about governance include: Was the 990 given to all board members before filing? Did the organization have a conflicts policy? Did the organization have a whistleblower policy Was compensation of the top management person reviewed and approve by independent people using comparability data and is there documentation of the review?

Duties of Board Members Most important – Make a commitment Understand your mission and know the bylaws and what they mean Communicate – with each other and the organization’s management Evaluate the organization’s programs – Are changes needed? Is funding sufficient? Make sure organization and its fundraisers are registered with the Charities Bureau Remember – you don’t have to do this alone – take advantage of available resources

Registration With the Charities Bureau Who must register and file annual financial reports: Organizations holding assets in NY for charitable purposes Organizations that solicit contributions in NY, including from individuals, government agencies and foundations Fundraising professionals hired by charities How to register – forms and instructions posted at www.charitiesnys.com

Registration of Fundraisers Fundraisers must register with the Charities Bureau Fundraising contacts must be filed Accurate reporting on each fundraising campaign – report signed by the charity and fundraiser Disclosures to persons being solicited See our guidance: https://charitiesnys.com/pdfs/Hiring%20a%20Professional%20Fundraiser.pdf

WANT TO CONTACT US? General Questions About Charities Email: charities.bureau@ag.ny.gov Questions About Fundraising Professionals Email: Charities.fundrasing@ag.ny.gov Questions About Transactions Email: charities.transactions@ag.ny.gov Complaints form http://www.charitiesnys.com/pdfs/char030.pdf Complaints - Email: Charities.complaints@ag.ny.gov