COMPLIANCE AND INTEGRITY IN GOVERNMENT AND NON-PROFIT ORGANIZATIONS Michael E. Nawrocki, CPA Managing Partner Nawrocki Smith LLP, CPA’s Historical Perspective Cultures of Dishonesty Regulatory Reponses Creating a Culture of Compliance and Integrity

Foreign Corrupt Practices Act of 1977 Establishing and keeping books and records in order to accurately and fairly reflect the transactions of a corporation Devise and maintain an adequate system of internal accounting controls Establish a policy or code of business ethics that prohibits corrupt payments to government officials Develop detailed procedures, standards, and guidance to address specific issues that might arise in the course of a company’s operations 1

Single Audit Act of 1984 Applies to entities receiving federal awards over established dollar thresholds Audit expenditures of federal awards Consider internal control over financial reporting and major federal award programs Address compliance with laws, regulations, and the provision of contracts and grants 2

Cultures of Dishonesty- The Roslyn School District “Tone at the Top” was fraud, waste and abuse Collusion among top district officials, as well as supporting staff Minimal oversight by trusting Board Incompetent CPA not following professional standards, involved in “cover up” 3

Cost of Dishonesty- The Roslyn School District Jail terms for top district officials and CPA $13 million of lost taxpayer dollars Loss of public trust due to lack of Accountability Transparency Oversight 4

The New York State Comptroller’s “5 Point Plan” 1. Requires formal training for Board Members 2. Establishment of an internal audit function 3. Appointment of a claims auditor 4. Establishment of an Audit Committee 5. Request proposal for external auditors every 5 years 5

Sarbanes-Oxley and the Non-Profit World Attempt by state governments to apply certain provisions of the Sarbanes-Oxley Act to non-profit organizations In 2002 NYS Attorney General Elliot Spitzer delivered a speech known as “The Crisis of Accountability” blasting non-profit organizations for not following proper standards and destroying public trust Resistance by non-profit world due to cost burden 6

Internal Revenue Service “Takes The Lead” In Corporate Governance In 2008, revamped annual information return on Form 990 for first time in over 30 years Adds extensive inquiries on corporate governance and disclosure requirements including: Compensation arrangements and procedures Related party transactions Conflicts-of-interest Whistleblower policy Review of Form 990 by Board Records retention policy 7

New York State Legislation Limiting Officer Compensation and Administrative Spending In 2010, Governor Cuomo declared “war” on excessive compensation for nonprofit agency executives In 2012, “Executive Order 38” was issued Non-profit organizations receiving substantial funding from New York State: -Cap executive compensation at $199,000 -Cap administrative expenditures to an ultimate rate of 15% by

New York State Non-Profit Revitalization Act of 2013 Non-profit laws hadn’t changed in 40 years Public trust enhanced through oversight policies and governance, which aid in preventing fraud Establishment of an Audit Committee of at least 3 independent Board members who meet with independent auditor before and after the audit Enhanced Board review of “related party transactions” Adoption of a written “conflict-of-interest” policy and preparation of annual statements or disclosures 9

New York State Non-Profit Revitalization Act of 2013 (continued) Adoption of a “whistleblower policy” to enable reporting of suspected illegality, fraud or violations of corporate policies and procedures Guidelines for establishing compensation for members, officers and directors 10

Non-Profit “Watch Dogs” “Philanthropic Advisory Service” of the Better Business Bureau “Charitable Navigator” “Give Well” “Charity Watch” “Guide Star” 11

Creating a Culture of Integrity and Compliance “Tone at the top” “Code of Conduct” and ethics training System of internal control Whistleblower policy and hotline Conflict-of-interest policy and annual disclosures Periodic risk assessment Annual audits or otherwise monitoring actual to plan 12