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Monday, November 15, 2004

From the November 15, 2004 print edition
Nonprofits' finance under Spitzer's watch
Annie Deck-Miller, Business First

If you're an executive or board member of a nonprofit, you may sometimes get the sneaking suspicion that your every move is being observed and judged.
Chances are, that suspicion is not far off the mark.
As accounting and management scandals wend their way through the corporate and nonprofit worlds, ripple-by-regulatory-ripple, charities and their leadership are increasingly expected to account for their activities and finances in careful, controlled, demonstrable ways.
This transparency is demanded both by a public that's grown skeptical and by lawmakers who want nonprofits to follow corporations down the path of fiscal accountability à la Sarbanes-Oxley, the 2002 federal legislation also known as the Public Company Accounting Reform and Investor Protection Act.
New York State Attorney General Eliot Spitzer was an early proponent of such reform, submitting a proposal to amend the Not-For-Profit Corporation and Religious Corporations laws to the state Legislature in early 2003.
Legislators in both houses agreed to sponsor the bill, which would expand protections against financial fraud or abuse. While it stalled in both the Senate and Assembly, it remains a priority for the Attorney General's Office and will be taken up in the session beginning in January by its sponsors, Sen. Vincent Leibell and Assembly Member Richard Brodsky.
"It's a priority because not-for-profit entities do not pay taxes, and we have to serve as the guardian of the public trust in that regard," said Brad Maione, spokesperson for Spitzer, who was not made available for comment.
The legislation would require the chief executives and chief financial officers of larger nonprofits -- those with gross revenues over $1 million or assets over $3 million -- to not only approve financial statements, but verify the accuracy of their contents. Other provisions encourage larger nonprofits to establish executive and audit committees and lay out new policies and penalties targeting board member conflicts of interest.
Since government, at all levels, awards hundreds of millions of dollars in contracts to nonprofits, Maione said, "We believe it's an obligation to protect those investments by the public, which is taxpayers, to ensure that the funds are spent for their intended purposes."
Cause for concern?
How have area nonprofits reacted to the word that an already highly regulated sector is likely to be subject to yet higher standards?

"They're not obsessing," says Michael de Freitas, an attorney with William C. Moran & Associates PC in Williamsville. "But I think it will also scare a lot of people."

De Freitas, who represents both grant-seeking and grant-making nonprofits, is not convinced that the legislation is necessary.
"Financial transparency has already been improving over the years," he says. "So I think there's a real question how effective these additional procedures would be when balanced with the possibility that you're going to scare away directors from joining boards."
Many nonprofits welcome the changes, and de Freitas says he's not aware of any area organization "with financial practices that are so out of whack that they would be in a risky position if this legislation took effect tomorrow."
"People should be available to get information easily that they believe they need to have in order to make a decision about making a contribution," said Arlene Kaukus, president of the United Way of Buffalo & Erie County.
She said she hopes nonprofits, particularly small- and mid-sized ones, will take advantage of the agency's four-year-old Not For Profit Resource Center.
"We're trying to help agencies fulfill those higher expectations," says Joe Roccisano, who took over two months ago as the center's director. He points to initiatives to recruit corporate professionals as volunteer advisers, assign college interns and facilitate mergers as ways that the Resource Center can help nonprofits to become more efficient and fiscally sound.
De Freitas positions the trend toward greater regulation within a long-term context.
"In the 1980s," he says, "it was sort of 180 degrees different. Then, everyone was concerned that directors were being scared off by the fear of third-party lawsuits.
"Now, the wave has gone the other way."

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