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CALIFORNIA INTRODUCES NEW CHARITY, FUNDRAISING REGULATION BILL

WASHINGTON (AFP eWire - Feb. 23, 2004) - California State Senator Byron Sher has introduced legislation, the Nonprofit Integrity Act of 2004, that would increase reporting and disclosure requirements for charities and charitable fundraisers. The bill, sponsored by California's attorney general, also incorporates certain sections of the federal Sarbanes-Oxley legislation regarding corporate accountability.

AFP was asked to review the bill by the attorney general's office and provided comments and recommendations to the state. However, AFP has some concerns with a few provisions in the current draft of the bill and believes the legislation, if passed, may be used by other states as a model for their regulatory framework.

Some of the bill's provisions include:

  • Requiring annual audits of any charity that receives more than $500,000 in gross revenue annually. The audit would have to be performed by an independent auditing firm that changes every few years.
  • Mandating that all contracts between a charity and a fundraiser or fundraising counsel be in writing. A contract would have to include a clear statement of the fundraiser's fee, an estimate of what percentage the fee will constitute of the total contributions received and a requirement that all contributions be deposited in a bank account maintained solely by the charity within five days of receipt by the commercial fundraiser.
  • Creating new disclosure requirements concerning charitable solicitations. Every printed solicitation or written confirmation of a solicitation must include a statement that registration and financial information concerning the charity can be obtained from the attorney general's website.
  • Prohibiting misrepresentations concerning the donation of tickets purchased by donors. In some cases, a few solicitors have led donors to believe that if they don't use the tickets they bought, the tickets will be given to 'needy kids.' However, these events don't actually exist or the tickets are never given to anyone else--with the solicitor keeping the proceeds.
  • Requiring that all persons registering with the attorney general maintain records regarding their activities for 10 years.

AFP is concerned that the gross revenue floor for triggering an audit ($500,000) is too low and will affect charities that don't have the resources to perform an audit every year. Another area of concern is the requirement for fundraisers to estimate, if paid on a fixed fee, what percentage of their fee will constitute the total amount of contributions received. Under the bill, it is possible to prosecute fundraisers if the estimate is wrong, even if a reasonable estimate was made.

Finally, provisions in the bill allow for 10-day and 30-day cancellation of contracts by the charity without cause. This requirement could actually increase costs for charities as fundraisers might try to require more up-front costs if they know charities can cancel without cause in the first 30 days.

AFP will be working closely with its California chapters to amend the bill so it does not create onerous burdens upon fundraisers working in the state. For a copy of the legislation, please contact the AFP Public Affairs Department at paffairs@afpnet.org.

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