The Nonprofit Giving Season: How to Stay Compliant with Your Fundraising Activities

As the end of the traditional tax year approaches, giving is on the minds of many business leaders and philanthropists. It’s a busy season for nonprofit professionals and you’re likely ramping up your fundraising efforts so that your organization has every opportunity to meet its financial objectives. Meeting your fundraising goals is important, but so is ensuring that your organization is compliant with fund-solicitation laws.

In California, the Attorney General is responsible for the oversight of charitable trusts and solicitations. This includes both charities and those who solicit funds on their behalf. This oversight is intended to ensure that charitable assets are utilized as intended and not used inappropriately or fraudulently. There are two main sections of the Attorney General’s regulatory program, the Registry of Charitable Trusts and the Enforcement Program.

The Registry of Charitable Trusts manages charitable registration and reporting requirements and is responsible for the review of notices for certain transactions such as the sale or disposition of assets, voluntary dissolution, mergers, conversion to a business corporation, self-dealing transactions, loans made to directors or officers or the sale or transfer of nonprofit hospital facilities.

The Enforcement Program, or legal and audit unit, investigates charities and pursues legal action against those who have misused funds. Their main focus is the mismanagement or diversion of charitable funds from their intended use. The cases they investigate are generally based on complaints and review of annual filings.

Certain charitable entities are required to comply with specific legal requirements. Entities with $2 million or more in gross revenue (excluding federal grants) must have an independent audit performed and financial statements must be made available to the Attorney General and the public, no later than 9 months after the close of the fiscal year.

Those required to conduct an independent audit must also have an audit committee that is appointed by the governing board, which cannot include 50 percent or more members of the finance committee. Members may not be employees of the organization, the President/CEO or Treasurer/CFO.

Organizations who intend to pay someone to solicit on their behalf must provide notice to the Attorney General. A contract must also be developed and signed by an authorized official of the governing board. Similar rules apply to fundraising counsel or consultants.

It’s not uncommon for nonprofits to misunderstand the laws surrounding fundraising and special events. For example, raffles are subject to very specific requirements regarding their operation and use of the proceeds. Events such as poker tournaments require a gaming permit along with any local event permits that may be required.

The legal and financial management of fundraising activities in California can be complicated. Regulations vary from state to state, one of the reasons that it’s so important to work closely with an experienced accounting firm with specific nonprofit expertise.