The Nonprofit Revitalization Act, signed into law by Governor Cuomo in December, 2013, takes effect on July 1, 2014.  This Act affects all New York nonprofits, which include many health care organizations.  Affected nonprofits have less than one month to implement the mandatory changes required by the Act.

In an effort to improve operations and enhance transparency and accountability, the Act changes many aspects of health care nonprofit governance and operations.  Some changes are mandatory by July 1, while others may be adopted at a later time. 

Mandatory Actions by July 1

  1. Adopt a Compliant Conflict of Interest Policy.  The Act requires all nonprofits, including health care nonprofits, to have a Conflict of Interest Policy.  The IRS Sample policy presently used by many organizations does not meet the new requirements imposed by the Act.  A compliant Conflict of Interest Policy must include procedures for disclosing, addressing, and documenting Conflicts of Interest and Related Party Transactions.  Related Party Transactions are specifically defined in the Act.  Additionally, the policy must require written disclosure of potential conflicts by directors, officers, and certain employees both prior to appointment or hiring and annually thereafter. 
  2. Adopt a Compliant Whistleblower Policy.  The Act requires nonprofits with more than 20 employees and more than $1 million in annual revenue to adopt a compliant Whistleblower Policy.  The Act sets forth the specific standards and requirements for this policy, including procedures for reporting violations and ensuring confidentiality of reports, designation of an individual to administer the policy, and a requirement that the policy be annually distributed to all directors, officers, employees and volunteers.
  3. Designate Policy Oversight.  The Act requires that either a committee of Independent Directors or the board oversee the required policies.  The Act includes a very specific definition of Independent Directors.  Whether to designate this oversight responsibility to a qualified committee or the board is within the board's discretion, but may depend on the size of the board, how many directors qualify as Independent Directors, the board's culture, and the current governance structure in place. 
  4. Audit Committee.  Nonprofits which must file audited financial statements with the New York Attorney General must have an Audit Committee comprised of Independent Directors, as defined in the Act.  As such, not all health care nonprofits will be required to implement this change immediately.  The Act includes the specific responsibilities of this committee, including oversight of the policies discussed above (unless another committee of Independent Directors or the entire Board oversees the policies).  For affected health care nonprofits, this new requirement may require changes to the board's composition and structure. 

Post-July 1 Actions

In addition to the mandatory changes required above, the Act includes changes that affect board governance.  This may require health care nonprofits to review and revise their bylaws.  Because these changes will be included in the law as of July 1, health care nonprofits may avail themselves of the new procedures on or after July 1, even if not included in their bylaws at that time (unless their bylaws provide for more stringent requirements).  Consequently, health care nonprofits generally do not need to revise their bylaws by July 1, but may do so any time on or after July 1 to include these new procedures within their bylaws.  By including the new procedures and standards in the bylaws, a health care nonprofit will enhance the awareness of the changes to ensure future compliance with the law.  We discussed these other changes in our prior Alert

Note however that a health care nonprofit will be required to revise its bylaws by July 1 if provisions of its current bylaws contradict the new law.  For example, a current bylaw which grants committees which include non-directors the full authority of the board would be inconsistent with the Act.  The Act provides that any committee that includes non-directors cannot bind the board.  Therefore, this provision would require revision by July 1 to ensure compliance with the Act.