The fundraising landscape has evolved in the last decade bringing with it many more ways through which nonprofit organizations can reach and attract prospective donors to support their cause. Nonprofit organizations are taking advantage of social networking sites, such as Facebook, Twitter, and LinkedIn. Online auctions service platforms such as eBay Giving Works and BiddingForGood. Charities are taking advantage of additional revenue streams such as multi-charity commercial covertures like AmazonSmile.
These fundraising opportunities have also brought about potential for fraud, conflict of interests, the risk of charitable organizations failing their public support test, potential unrelated business tax liability, fundraising registration compliance, and so on. The current regulatory framework needs to be updated to catch up with the changing landscape.
Furthermore, many well-intentioned nonprofit organizations through no fault of their own, could easily incur penalties and fines through inaccurate registration and reporting.
The California Assembly Bill 488 is the first action by a state to modernization current statutes to accommodate contemporary online charitable fundraising or regulate charitable fundraising platforms.
The bill defines charitable fundraising platforms as: “Any person, corporation, incorporated association or other legal entity that uses the internet to provide an internet website, service, or other platforms to persons in this state, and performs, permits, or otherwise enables acts of solicitation to occur”.
AB-488 or The Supervision of Trustees and Fundraiser for Charitable Purpose Act governs charitable corporations, unincorporated associations, trustees, commercial fundraisers, fundraising counsel, commercial co-venturers, and other legal entities holding or soliciting property for charitable purposes over which the state or the Attorney General has enforcement and supervisory powers.
Previously commercial co-venturers had the option of registering with the California Attorney General by completing a registration form and paying a $350 fee. Another option was to have a written contract in place with the benefiting charity and transfer all proceeds from the campaign raised for the charity to the charity every 90 days during the campaign.
Charitable fundraising platforms and platform charities are now required to file annual registrations with the Attorney General’s Registry of Charitable Trust and pay the applicable registration fee.
Charitable fundraising platforms and platform charities are now required to renew their charitable sales promotion registration annually upon forms prescribed by the Attorney General and pay applicable fees to the Registry of Charitable Trusts Fund.
Charitable fundraising platforms and platform charities will be required to file annual reports on forms provided by the Office of the Attorney General.
Charitable fundraising platforms and platform charities can only legally enter into arrangements with charitable organizations that are in good standing with the IRS, California Tax Franchise Board, and the Attorney General.
Charitable fundraising platforms and platform charities are required to obtain a written consent of the benefiting charitable organization before using its name in a campaign. They are also required to remove benefiting charities upon receiving a written notice from the charity.
These platforms are required to provide disclosures to prospective donors the likelihood of deception, confusion, or misunderstanding
To prevent the misappropriation of funds collected on behalf of the benefiting charity, CCVs are now required to hold these funds in separate accounts and to ensure that donations and grants are sent promptly to the benefitting charity with an accounting of any fees imposed for processing the funds and in accordance with rules and regulations.
The bill empowers the Attorney General to impose specified civil penalties to any person who violates, misleads, misrepresents, or fails to comply with provisions of the acts. In other words, failure to file in a timely manner, not filing, failure to correct errors or deficiencies when alerted to do so by the Office of Attorney General, and so on.
Although California AB-488 applies only to California charitable solicitation registration, it is safe to surmise that more states will enact similar laws. There is a growing consensus amongst state regulators to modernize existing law. In the recent NASCO conference, New Hampshire Attorney General stressed the importance of updating the existing fundraising regulatory framework to more appropriately reflect the nature of today’s charitable giving. If you have any questions, please do not hesitate to contact us.
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