Nonprofit Governance Reforms

Pressure is building for governance reform in nonprofit organizations from several quarters. Directors who serve in management or on the boards of public companies may insist on certain reforms they have enacted elsewhere, out of a concern for personal liability. Outside auditors are demanding broader representations in management letters and are assessing the quality of governance in the context of their reports on the adequacy of internal financial controls. Rating agencies, such as Fitch's and Moody's, have suggested that they will take “governance” into account in assigning ratings for tax exempt debt. Legislative proposals by the Attorneys General of California, Massachusetts and New York would impose specific governance and certification requirements on nonprofit organizations subject to charitable trust oversight. Finally, the IRS has recently announced its intention to weigh in on standards for corporate governance in the context of conflicts of interest, inurement and private benefit that may give rise to intermediate sanctions.