NY nonprofit overhaul proposed

By Michael Virtanen ALBANY, N.Y. — State Attorney General Eric Schneiderman proposed Thursday increasing the accountability of 103,000 nonprofits in New York through new board requirements and helping many financially by streamlining state contract payments, reporting and registration rules.

Schneiderman, whose office monitors all nonprofits, including 60,000 registered as charities, was endorsing the findings of the review committee he appointed last year. The legislative proposals would give his office and the nonprofits themselves new tools to police fraud and abuse.

With 1.2 million paid employees, the nonprofit sector represented 18 percent of New York's private work force in 2010. The state had 22,000 active contracts with nonprofits totaling almost $17 billion as of last October for services like legal aid, child welfare, affordable housing and drug counseling, according to the review committee composed mainly of nonprofit officials and some attorney general staff. Their total revenue was about $200 billion, topping all other states.

“In these difficult economic times, it is more important than ever to make New York a hospitable environment so nonprofits can continue to carry out their vital work," Schneiderman said. “At the same time, we must maintain the public's trust by ensuring that nonprofits are governed effectively, and with meaningful oversight."

Michael Clark, president of the Nonprofit Coordinating Committee of New York and a member of the review panel, called their report “a blueprint for modernizing a critical sector of our state's economy to improve services and reduce waste."

Schneiderman's panel recommended state law revisions to require nonprofit boards annually determine that the total pay of their chief executives, top financial officers and other key employees is “reasonable, justified and commensurate with services provided." That review would have to include all benefits and perks and document their justification. Also, boards would have to adopt conflict-of-interest and whistleblower policies.

In January, Gov. Andrew Cuomo signed an executive order to limit administrative costs and executive pay at state-funded service providers with a $199,000 salary cap for executives.

The legislation would prohibit chief executives or other paid employees from serving as board chairmen to ensure the board has the oversight role and isn't simply being led by the executives. It would grant the attorney general new authority to specifically challenge improper self-dealing. “Central to maintaining trust in the charitable sector is public confidence that insiders are not exploiting their positions for personal gain," the report said.

On the nonprofits' financial side, the panel noted that in 2010 that state agencies reported 71 percent of their contracts were not approved until after the start dates, while a comptroller's review found they were late 92 percent of the time. Citing the contract approvals required by state agencies, the comptroller, attorney general and budget division, the report urged “centralizing redundant functions" in a new Office of Contracting Reform and Accountability, saying it would both save taxpayer money and expedite contract approvals and payments.

The report called for lengthening the state contract calendar to start the planning cycle earlier, restructuring contracts from to allow “fifth-quarter financing" for continued payments when existing contracts are to be renewed, providing short-term loans, moving from annual terms to multi-year contracts and further standardizing state contracts. The group proposed one central data vault for nonprofit filings used by all state agencies, while creating a state contracting website where nonprofits can track the status of bid requests, contract approvals, payments and audits.

Another legislative proposal would simplify nonprofit registrations at the Department of State by eliminating the sometimes confusing “Type C corporations" category for those which are charitable in nature but also have a “business purpose," for example for community theaters that sell tickets. Many other required state agency preapprovals, which can take months, would be replaced with requirements that nonprofits notify the agencies that they have formed. Various other reporting requirements would be allowed online.