accountability update healthcare trustees of new york state audioconference september 22, 2005 mark...

ACCOUNTABILITY UPDATE

Healthcare Trustees of New York StateAudioconferenceSeptember 22, 2005

Mark ThomasWilson, Elser, Moskowitz, Edelman & DickerGeneral Counsel, HANYS

CENTERS OF ACTIVITY

Federal Level – Congress & IRS Senate Finance Committee House Ways & Means Committee Joint Committee on Taxation Panel on the Nonprofit Sector

State - Attorney General Much Less Active

STATE LEVEL

AG Moving Away From “Sarbanes For Nonprofits” LegislationContinues Focus on Compensation, Insider Transactions Breaches of Fiduciary Duty by Board Grasso Lawsuit As Example

Seeks Authority to Enforce Federal Tax Laws on Comp. & Inside DealingWill Medicaid Fraud Issue Renew Accountability Debate?

FEDERAL LEVEL

Senate Finance Committee Hearings & Staff Report in ’04House Ways & Means HearingsRecommendations of Joint Committee on Taxation in January ’05Transparency and Self Dealing Are Dominant ThemesRoute Is Tax Laws, Not Sarbanes

SENATE FINANCE COMMITTEE STAFF REPORT

Five Year Review of Tax-Exempt Status File Corporate Documents, Conflict of

Interest Policy, “Best Practices” Governance Policies, Financial Statements

No Need for IRS to Renew Exemption

Impose Tax on Charity If Self-Dealing, Compensation Rules Violated Currently Only Involved Individuals

Penalized

FINANCE COMMITTEE (cont)

Allow States to Prosecute Tax Rules on Excessive Compensation & Inside DealsRequire CEO to Certify Accuracy of the 990 ReturnRequire Independent Auditor Review of 990 ReturnRequire More Disclosure on Deals With Related Corporations

FINANCE COMMITTEE (cont)

Governance Proposals Federal Fiduciary Standard for Board

Members Require Certain Duties of Boards

Largely Already Being Done by Providers Board Composition of 3 – 15 Members Give IRS Authority to Remove Board

Members Proposed Accreditation of Charities

JOINT COMMITTEE ON TAXATION

Large Chapter in January 2005 Report “Options to Improve Tax Compliance

And Reform Tax Expenditures”

Require Five Year Review of Tax Status Hold Organization Accountable for

Pursuing Its Exempt Mission Only for Organizations Formed W/In Last

10 Years & Going Forward

JOINT COMMITTEE (cont)

Consider Conversions to For-Profit Status as Potential Insider Deal

If Assets Not All For Charitable Purpose, Insider Taxes Imposed

If Charity’s Directors, Officers Become Ds & Os of For-Profit, Treat As Insider Deal Compensation, Severance, Fairness of Deal


Change Compensation and Insider Deal Rules

Even if Follow Rules for Using Due Diligence, Not Presumed Fair & Reasonable

Impose Tax on Charity if Compensation & Self-Dealing Rules Violated Tax at Rate Double of Rate Imposed on

Individuals


Require Public Disclosure of Form 990-T Unrelated Business Income Return Require Certification By Independent

Auditor that 990-T Is Accurate Public Scrutiny Enhances Transparency

& Accountability Gives More Complete Picture of

Charity’s Activities For-Profit Business Returns Not Public

PANEL ON THE NONPROFIT SECTOR

Convened By Independent Sector In 2004At Suggestion of Senate Finance CommitteeBlue Ribbon Nonprofit Governance LeadersJune 2005 Report to CongressPartly Responds to Senate Finance 2004 Staff Report

PANEL ON NONPROFIT SECTOR (cont)

As Recommended Practice, Charities Should Publicly Disclose Program Information & Evaluations of Effectiveness

Not a Legislative Mandate 990 Form Not Appropriate

Reporting Tool


Loans to Board Members Should Be OutlawedCompensation of Board Members DiscouragedPenalties for Approving Excessive Compensation Should be IncreasedShould Be Clearer Disclosure Of Executive Comp and Due Diligence Procedures


Board Minimum Should be 3 But No Ceiling On Number is WarrantedOne-Third of Board Members should Be Independent No Financial Connection within Past 12

Months

Strong Board Education on Fiduciary Duties Should Occur


Should “Consider” Separate Audit CommitteeBoard Should Have Persons w/ “Financial Literacy”Should Have Conflict of Interest Policy Disclose to IRS

Protection For WhistleblowersStrong Enforcement of Conflict Policy