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Karin Kunstler Goldman Deputy Bureau Chief, Charities Bureau Office of the Attorney General Charities Bureau Symposium Syracuse, New York November 14, 2017 1
Karin Kunstler GoldmanDeputy Bureau Chief, Charities Bureau
Office of the Attorney General
Charities Bureau SymposiumSyracuse, New York November 14, 2017
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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. Schneiderman2
∗ Board Members?∗ Executive Directors?∗ Chief Financial Officers?∗ Other Employees?∗ Volunteers?∗ Attorneys?∗ Accountants? ∗ Anyone else?
Who Are You?
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∗ 1.25 million employees∗ 18 per cent of total private work force in 2010, (Johns
Hopkins study)∗ more than $57 billion in wages (2010)∗ Average wage $45,000∗ 22,000 state contracts-$11 billion/year∗ 74,000 NY Charities in IRS records (does not include
houses of worship)∗ 80,000 registered charities (includes non-NY)∗ Over 5,000 registered organizations in Syracuse and
the surrounding counties
Who Are You?
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∗ Gates Foundation $42.3∗ Ford Foundation 11.2∗ Kamehameha Schools 11.1 ∗ Getty Trust 10.5∗ RW Johnson Fdn. 9.5∗ Hewlett Fdn 8.7 ∗ WK Kellogg Fdn 8.2∗ Lilly Endowment 7.7∗ Moore Fdn 6.4∗ Packard Fdn 6.3∗ Mellon, MacArthur, Pew, Bloomberg, Helmsley,
Rockefeller, 6 others between $3-6 billion
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Largest Private Foundations by Assets
∗ 22,000 state contracts-$11 billion/year∗ Foundations∗ Federal Grants (some via NYS)∗ Fee paying “customers”∗ Individuals - New Yorkers’ itemized donations
(Urban Institute – 2016)∗ 1995 - $7 Billion∗ 2013 - $18 Billion ∗ and – not everyone itemizes
Who Supports You?
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GIVING
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GIVING TO DONOR-ADVISED FUNDS
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% OF Donor-Advised FUNDS DISTRIBUTED TO CHARITIES
∗ 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
What do Supporters Look For?
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∗ Charities Bureau∗ Lawyers∗ Accountants∗ Legal Assistants∗ Registry –
∗ Charities – New York City∗ Fundraisers – Albany
∗ Regional Offices – 13 in the State, including∗ Syracuse
Who Are We?
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Four statutory responsibilities:∗ Protect the charitable purpose and mission
∗ Includes oversight of transactions – More about this from Donna Cole-Paul
∗ 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)
Our Responsibilities
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∗ Increase public confidence in the nonprofit sector ∗ Support the nonprofit sector’s role in New York
and its growth through encouraging self-reliance and effectiveness of individual charities
∗ Protect charitable assets, and assure they are used to support the charitable mission and donor intent
∗ Assure accountability for ∗ Service revenues∗ Government grants and contracts∗ Private donations
Our Goals
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∗ Changes in donation methods and patterns∗ Role and Importance of respect for donor intent∗ Supporting development efforts∗ How donor can make a difference ∗ Encouraging and supporting gifts
∗ Wills providing charitable remainders∗ bequests∗ cy pres (“as near as possible”) responsibilities∗ Social media giving
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Our GoalsSupport Donor Generosity
∗ Protect Charities’ Reputation∗ Searchable registration and reporting∗ Guidance documents
(https://www.charitiesnys.com/guides_advice_new.html)∗ Fundraisers (pennies for Charity Report; fundraiser
project)∗ Bogus charities (National Vietnam Veterans Foundation) ∗ Avoid use of charity name for unauthorized or
unsupervised fundraising (clothing bins)∗ Commercial co-venture activities
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Our Goals
∗ 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
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Protecting Charities’ Assets and Endowments
∗ With IRS 990 data, much more visible to public and regulators this year
∗ Common (bad) reactions:∗ We can’t tell our members∗ We can’t tell our towns and villages∗ We can’t tell the public∗ We can’t tell the Comptroller∗ Let’s just hope no one notices∗ He is a good guy who made some mistakes∗ Give the embezzler the chance to resign quietly∗ We can’t tell the Attorney General
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Bad Things Happen to Good People
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Do you know this man (photo from Putnam Daily Voice)?
∗ 13 years of embezzlement by Mahopac VFD treasurer (2002-2015)
∗ Treasurer wrote 275 checks for more than $5.7 million to his two businesses, Abbie Graphic Services and Buckshollow Emergency Equipment Corp.(clear conflict of interest, clear related party transaction in violation of NPCL)
∗ $5.6 million∗ 55 foot yacht, jewelry, home in Florida, antique fire truck∗ Sentencing June 21
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Michael Klein, New York’s Largest Fire Company Thief-Guilty Plea 3/7/17
∗ 2014 Return $2 million in revenue, $2 million in expenses∗ Signed by thief Mike Klein (treasurer and embezzler)∗ Signed by preparer, CPA ∗ Did the organization become aware of a significant
diversion of its assets during the year? No. ∗ Document meetings? No∗ Conflict of interest policy? No∗ Only two officers-no directors
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Mahopac VFD IRS 990
No review was or will be conductedNo documents available to the public
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Mahopac VFD IRS 990
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BAD THINGS HAPPEN TO GOOD PEOPLE
∗ United Methodist Church of Manlius
∗ John Osborn-volunteers as head of Finance Committee∗ Mary Meyer, attorney and CPA -volunteers as Treasurer∗ Embezzled $444,000 in endowment funds.∗ Mary-3-9 years∗ John-5-15 years∗ Osborn-convicted of a similar scheme in 1992, when he was
treasurer of the Camillus Housing Authority. He was sentenced to five years' probation and repaid the $120,000.
∗ Mary disbarred 2014
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2008
∗ 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
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Responding to Embezzlement
COMING LATER!KELLY MATHEWS
Accounting from the Inside Out –Internal Controls and External Accountability
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PREVENTING EMBEZZLEMENT-MANAGING ACCOUNTS
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
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∗ 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)
Duties of Board Members
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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
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• 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
Conflict of Interest Policy (cont.)
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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?
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∗ 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 volunteersNOTE - though required for organizations with revenue over $1 million and 20 or more employees, smaller organizations may want to consider adopting a whistleblower policy
Whistleblower Policy
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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
∗ Effective May 27, 2017 – Amended definition of Independent Director
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Audit CommitteeIf 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
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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.
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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
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WHY DO WE CARE ABOUT AUDITS AND OVERSIGHT OF AUDITS?
∗ Is there effective management∗ Internal controls and systems∗ Fraud risk∗ Governance∗ Independent assessment∗ Knowledge by Board and executives ∗ Reliance on information in 990s
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∗ 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 Board Members
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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 Boards of Directors
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∗ 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 BureauRemember – you don’t have to do this alone – take advantage of available resources
Duties of Board Members
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∗ 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
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Registration With the Charities Bureau
∗ 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 ∗ Truthtelling ∗ See our guidance:
https://charitiesnys.com/pdfs/Hiring%20a%20Professional%20Fundraiser.pdf
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Registration of Fundraisers
∗ 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
HOW WE HELP CHARITIES
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WANT TO CONTACT US?
∗ General Questions About CharitiesEmail: [email protected]
∗ Questions About Fundraising ProfessionalsEmail: [email protected]
∗ Questions About TransactionsEmail: [email protected]
∗ Complaints form http://www.charitiesnys.com/pdfs/char030.pdfComplaints - Email: [email protected]
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Karin Kunstler GoldmanDeputy Bureau Chief
Charities Bureau [email protected]
Thank You for Your Attention andThe Work That You do for
New Yorkers
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