Yesterday, the Massachusetts Attorney General proposed An Act to Promote the Financial Integrity of Public Charities, which included the following changes...
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to existing Massachusetts law:
Review by Board of Filings. Board leaders and officers of charities must verify that boards have reviewed and accepted the financial filings submitted to the Division of Public Charities, including any audits that a charity may be required to perform and file.
Mandatory Audits and Audit Committees. Charities with revenues over $500,000 or with $5 million in assets must provide audits and those charities must have audit committees. There are certain requirements for those audit committees, including that a majority be board members and that the members be independent. Charities that are part of a system (e.g., a healthcare system) may have a single audit committee. What people need to start asking is why one state requires an audit committee with only board members and another allows some outsiders? People also need to ask about a standard definition for "independence."
Whistle-blower Protection. Charities may not retaliate against a whistle-blowing employee who complains about the misuse of charitable assets (as opposed to an employment grievance).
Incorporation of Intermediate Sanction Standards. Individual officers and directors may not obtain excessive private benefits due to their work with charities. Charities must pay only reasonable compensation to employees, officers, or directors, and may allow only appropriate related-party transactions. The legislation incorporates the standards set by the IRS Intermediate Sanctions regulations, which generally define how to determine reasonable compensation and what are improper related party transactions, so that charities do not face conflicting state and federal standards.
Higher Damages Against Directors and Officers. The Attorney General may seek penalties of $5,000 per statutory violation, rather than the existing penalty of $500. In addition, the Attorney General may, in course of bringing an action to remedy excess compensation or improper related party transactions, request that a court impose a fine, order restitution, or direct the removal of officers or directors. We will be interested to see how this provision is integrated with any liability shield under Massachusetts law.
Click here for a copy of the bill's language.
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