The Connecticut Attorney General has opened an investigation into two in-state charities that did not register with the office’s Public Charities Unit. The groups worked around leukemia and were accepting donations to help a high profile 22-year-old Yale student. Yale University had referred people to these charities.
It would have been so easy to comply with the Charity Registration laws. Connecticut accepts the Unified Registration Statement, or URS, and the registration fee is only $50. Some states charge well into the hundreds.
This investigation was completely avoidable.
Is your nonprofit registered in all the states where it solicits?
Courtesy of 401(K) 2012 on Flickr.Recently I posted about how I see nonprofits acting more like companies, and being treated as for-profits by state and federal regulators. In just the past few days there’s more evidence of overseers regulating charities like companies.
Two weeks ago, Ken Feinberg, the Obama administration’s special master on executive compensation, complained about top executives’ pay at Goldman Sachs, Bank of America, AIG, Morgan Stanley and lots of other companies.
Corporate salaries under the microscope, and a week later, nonprofit salaries. That’s quite a parallel.
It goes further. The IRS’s director of exempt organizations is issuing warnings about nonprofits’ unrelated business income, or UBI. There’s tax to pay (UBIT, go figure) on income earned by nonprofits that is outside their charitable mission. This is a technical area (starting with the issue, “what income is unrelated”) and within the purview of more august personages than me.
“Salaries & Income Reporting Under Scrutiny”. Couldn’t that be a headline reporting on the oil, financial services or auto industry?
At the same time, there’s the retirement of the head of the Association of Fundraising Professionals. Rather than retire, she should go on to lead the American Bankers Association.
The most common problems fall under transparency, accountability and board inactivity. These are among the areas of focus for the IRS and states, as I explained in a post on the corporatization of nonprofits.
The solution is educating board members about what’s required and what their role is in compliance with federal and state standards. The Better Business Bureau will be satisfied. The UJA-Federation of New York has a program that teaches young people the responsibilities of board membership, and there’s at least one similar program in the Jewish community. I hope the students get on boards fast, so these 20- and 30-somethings can teach the 60- and 70-somethings some important lessons.
Attention board members: Compliance issues are critical and you are responsible!
Is there something you’d like to say to a board? Do you know of similar youth training programs?
The thing is, being featured on the app is a charitable solicitation, which triggers state registration requirements wherever the solicitation is made. With the proliferation of iPhones, that’s potentially every state. This becomes really interesting.
iPhones are in every state, but where is this app soliciting?
If I download the app from my home in New York, each (rotating) featured charity would have to register here before it is featured. If I carry my phone on the MetroNorth train into Connecticut, is the charity now soliciting there? I’m not sure. If I carry a solicitation letter into Connecticut that I received in New York, that’s not a Connecticut solicitation. The letter was specifically addressed to me in New York. The iPhone app is made to be portable, so the charity knows (or reasonably should know) that its solicitation is going to be carried around from state to state.
It doesn’t matter whether I make a donation. Mostly what drives the registration requirements is where the solicitation goes out to, not where donations come in from.
The answer would start with a determination whether the state has jurisdiction over the charity, based on the charity’s activities within the state. It’s a legal question, based on analysis of the charity’s full relationship with each state (what the law calls “contacts.”)
Knowing that lots of states haven’t updated their statutes to accommodate even email and website solicitations, I don’t expect iPhone solicitations to garner enforcement attention. (Note that even though statutes are not up-to-date with email and web, many states do have policies that encompass these solicitation methods. In many states, including New York, Florida, Arizona, Illinois and Virginia, the moment your “Donate Now” button goes live on your website, for instance, you are soliciting and must register with state authorities.)
This iPhone app creates interesting academic questions. Any thoughts on my thoughts? How would you look at the problem?
Courtesy of TW Collins on Flickr.Our country’s nonprofits are swiftly becoming more like their for-profit corporate counterparts.
Recently, Reuters told us nonprofits mimic the language of Wall Street, but for years donors have demanded to be treated as investors, and the institutions have obliged, referring to “returns on investment” and negotiating gift arrangements as contracts. More recently, foundations and individual donors have insisted on outcome metrics, best practices, benchmarking, social impact and performance standards. All of this was unheard of 7 to 10 years ago in nonprofit communities.
Donors and grantors are not alone in creating this change in culture and enterprise organization. Federal and state governments also unite our nonprofit and profit-making corporations. Since Sarbanes-Oxley reforms were levied against the profiteers in 2002, serious talk about identical improvements has trickled down to those with a calling higher than profit. (I’m uncertain what tone to take about this: lamentation; resignation; pride; excitement; exhilaration.)
To my recollection, “board development” didn’t exist 10 years ago. At the least, it wasn’t nearly as much a part of the nonprofit lexicon as today.
Our Internal Revenue Service, through its agents and tax-exempt commissioners, measures, and pronounces about good governance, accountability, financial integrity, transparency and oversight.
State Charity Registration laws, which I study, write and speak about a lot, have been enforced more in the last 18 months than anybody I know can remember. The IRS stepped in here, too, probing more directly in its heavily-revised Form 990, an unusual instance of a federal agency asking about compliance with purely state laws.
Even the legal form of the nonprofit enterprise is becoming indistinguishable from its counterpart. Several states have adopted the Low-profit Limited Liability Company, or L3C. Profit is allowed but must not be the primary objective. (By the way, you should pay attention to Gene Takagi, publisher of the blog at that last link.)
Nonprofits are becoming more like companies.
Part of me longs for the charming days, when do-gooders came together, appointed their parents and friends to boards, raised money, and did their best with heart and head to make a difference in their community. We cannot return to that time, and we shouldn’t. But I partly miss it. It was so much easier.
I’m between resignation and excitement, closer to the latter. Funders and governments demand change and nonprofits are complying, looking more like for-profits, at a pace that is accelerating and will not reverse.
This brings enormous, promising opportunity for smarter, more efficient execution of charitable missions, which should mean better service to those in need throughout the world. (That sentence hits on several subjects debated by bigger thinkers and more august personages than me.) Look at organizations like charity: water and The Center for High Impact Philanthropy to discover the possibilities. (At The Center, I commend Autumn Walden to your attention.)
What examples do you see of the corporatization of nonprofits? Are you excited by what we’re witnessing? Do you miss the old days, or am I alone?
The Connecticut Attorney General has opened an investigation into two in-state charities that did not register with the office’s Public Charities Unit. The groups worked around leukemia and were accepting donations to help a high profile 22-year-old Yale student. Yale University had referred people to these charities. 
