Blog post courtesy of: Cowan Consulting for Nonprofits, PLLC; providing legal and strategic counsel to nonprofit organizations.
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Successful nonprofits need no reminders about the importance of guarding their reputation – they know that even the best fundraising efforts will fail if the organization does not maintain the trust of its donors. While Americans are known worldwide for their quick and generous response to those in need, they are equally swift in taking their support elsewhere at even the hint of scandal. And it is not just money that is at stake – it is difficult for a nonprofit to fulfill its mission if it cannot maintain the trust of its supporters and the public at large.
That is why the Florida legislature wasted little time in enacting tougher laws governing charitable solicitations in the wake of the Tampa Bay Times exposé that revealed a darker side to some of our nation’s charities. The result of an investigation by the newspaper, conducted in partnership with the Center for Investigative Reporting, confirmed a donor’s worst fears – millions of dollars contributed to causes that help veterans, terminally ill children, firefighters and people with cancer were not reaching those in need. Instead, they were lining the pockets of professional fundraisers and nonprofit executives. To make matters worse, the report identified the worst offender as a Florida-based charity, Kids Wish Network, which was accused of raising millions of dollars in the name of dying children, with only 3 cents of every dollar actually going to help children.
The response by the Florida legislature focused on increasing penalties against bad actors and tightening up the regulation of professional fundraisers. However, the legislation, which consists primarily of amendments to the Florida Solicitation of Contributions Act (“SCA” or “the Act”), also makes significant changes that apply to all nonprofits regardless of whether they use professional fundraising consultants or have a history of ethical or legal problems.
Below is a step-by-step guide to ensure compliance with the new requirements. A word out caution: every nonprofit organization is different and may have unique circumstances that impact the applicability of the new provisions. Moreover, while the law became effective on July 1, 2014, the Florida Department of Agriculture and Consumer Services (hereinafter “Department of Agriculture”), the government agency charged with oversight of charitable solicitations, has yet to provide any information on how it intends to implement the new law. If your organization is unclear about how to fulfill its obligations under the Act, please consult with an attorney or contact the Department of Agriculture for guidance.
Step One: Ensure that your Organization is Properly Registered to Raise Funds in Florida.
Regardless of the size of your organization or how much money it raises each year, if you have not been in contact with the Department of Agriculture in over a year, chances are you are not in compliance with the Florida Solicitation Act. With the exception of government agencies and certain religious and educational institutions, before asking for any financial support, organizations must obtain a permit from the Department of Agriculture or submit a claim that requesting exemption from the permit requirements. The exemptions are limited and include organizations that raise under $25,000 in a fiscal year, certain fundraising efforts undertaken on behalf of individuals, organizations that only solicit from their members, and veterans’ service organizations granted a federal charter under Title 36 of the United States Code. All organizations, even those exempt from registration, must renew their status annually. The permitting requirements are not new, but given the increased focus on charitable fundraising, it is recommended that organizations ensure that their permits (or exemptions) are current. Click here to see if your organization’s registration is up to date.
Step Two: Review your Conflict of Interest Policy.
It has always been good practice to have a conflict of interest policy in place. Indeed, the IRS Form 990 asks tax-exempt organizations whether they have a conflict of interest policy that requires disclosure of potential conflicts, and whether that policy is adequately enforced. Florida has gone one step farther and, under the new law, nonprofit organizations that are required to register with the Department of Agriculture must adopt a Conflict of Interest Policy. The policy must also should require that each director, officer and trustee certify annually that he or she is in compliance with the policy. The certifications must then be submitted to the Department of Agriculture at the time that the annual registration statement is due.
Step Three: Update your charitable solicitation disclosures.
Under existing law, an organization fundraising in Florida must display statutorily prescribed language on its solicitations. The law now requires that this language be included on your website on any webpage that identifies a mailing addresses where contributions can be sent, provides a telephone number to call to make a contribution, or has an online processor for contributions. The prescribed language has also been modified to include the Department of Agriculture’s website address where registration and financial information about nonprofit organization can be found.
Here is a sample disclosure:
A COPY OF THE OFFICIAL REGISTRATION AND FINANCIAL INFORMATION FOR [ORANIZATION], A FLORIDA-BASED NONPROFIT CORPORATION (REGISTRATION NO. CHXXXXX), MAY BE OBTAINED FROM THE DIVISION OF CONSUMER SERVICES BY CALLING TOLL-FREE 1-800-HELP-FLA (435-7352) WITHIN THE STATE OR VISITING THEIR WEBSITE HERE. REGISTRATION DOES NOT IMPLY ENDORSEMENT, APPROVAL, OR RECOMMENDATION BY THE STATE.
Step Four: Determine whether you need to provide the State with updated information.
Existing law requires that an organization inform the Department of Agriculture of changes to the information provided in the initial registration on an annual basis. For example, if the organization becomes authorized by another state to solicit contributions, it must inform the Department at the time of its annual renewal. It must also disclose information that might indicate malfeasance on the part of the organization or its officers. For instance, if the organization has been enjoined from soliciting contributions in another state or any of its directors or officers have committed a crime relating to theft or fraud, the organization must divulge this information when filing its initial registration and update that information on an annual basis. Under the new law, an organization must file an update “within 10 days after the change occurs” on a form provided by the Department. The penalties for failure to disclose can include automatic suspension of an organization’s registration until the appropriate information has been submitted.
Step Five: File your annual registration and financial statements on time.
In the past, the Act allowed the Department of Agriculture to grant an extension for filing an annual renewal statement or financial statements for up to 60 days. During that time, the prior registration remained in effect. The new law eliminates the ability of the Department of Agriculture to grant an extension for the annual registration. The Act does contain a provision that allows an extension of filing a financial report for good cause. In either case, failure to file within the time allowed results in an automatic and mandatory expiration of an organization’s registration.
Step Six: Determine whether your organization is subject to more stringent financial reporting.
The Act requires that an organization file an annual financial statement that includes, among other things, a balance statement and an income statement. The Act provides an option for organizations to file an audited statement or a Form 990. Under the new law, filing an audit prepared by a certified public accountant (CPA) is now mandatory for organizations that receive over $1 million in contributions. In addition, an organization that receives more than $500,000 in annual contributions but less than $1 million must submit a financial statement that has been “reviewed or audited” by an independent CPA. An audit or review remains optional for smaller organizations although the Department has the authority to require an audit or review of any organization if there are discrepancies in financial statements such as irregular or inconsistent information.
Step Seven: Determine whether other provisions apply to your organization.
The measures listed above apply generally to all nonprofits. The law contains many other provisions that may apply to your nonprofit including but not limited to:
- Additional financial reporting for organizations that raise over $1 million but spend less than 25% of their income on program expenses,
- Signage requirements for organizations that use collection receptacles,
- Requirements for organizations that solicit contributions in response to disasters,
- Exclusion of certain blood establishments from the Act,
- New penalties for bad actors that may impact an organization’s sales tax exemption,
- Sweeping changes to the registration requirements for fundraising consultants and solicitors, and
- Fundraising restrictions on individuals with criminal records.
The new law also provides for increased penalties that can include the revocation of the sales tax exemption allowed for certain charities in Florida.
Florida’s residents have shown themselves to be compassionate people donating generously to a multitude of important causes. It is unfortunate that responsible nonprofit organizations have to suffer, both in terms of reduced donor confidence and additional regulatory requirements, as the result of a few bad actors. However, the new law sends a clear message to those seeking to gain at the expense of Florida’s nonprofit community – that preying on the kindness of Florida’s residents for personal gain will no longer be tolerated. While the law is in its early stages of implementation, the small inconveniences created by this law will likely go far in preserving the excellent reputation of Florida’s nonprofit community.