In a technology-driven age, it’s easier than ever for nonprofits to reach new donors, grantmakers, and other sources of funding. Fundraising campaigns that used to take tremendous amounts of human, physical, and capital resources have moved largely online, reducing costs and stress factors for nonprofits everywhere.
Now delighting in the relative simplicity of these efforts, nonprofits have a new challenge to face, that is, fundraising compliance. What’s that, you ask? Fundraising compliance, a.k.a. charitable solicitation compliance refers to your organization’s adherence to the registration, reporting, disclosure, and other consumer protection requirements in any of the 45 states that presently have these laws.
What Do We Mean by “Fundraising Compliance?”
The definition alone, to say nothing about the effort required to actually “be compliant,” may well be enough to make your head spin. Don’t worry. We’re here to break things down for you. Consider this post a 101-level crash course in fundraising compliance, designed to get your feet (and your board’s feet) wet and make it all a bit less scary.
Here’s another definition for you: “solicitation.” Solicitation is simply the act of asking for support, which for your organization may mean a monetary contribution, a grant or perhaps in-kind donation. The methods nonprofits use to solicit can take many forms, including sending letters or email, making phone calls, and yes, leveraging social media, crowdfunding websites, and a “Donate Now” page on their websites.
If your organization is like most others, you solicit using a healthy mix of methods to reach your donors. No doubt, online methods have furthered your ability to reach sources of funding in new and faraway places. However, nonprofits soliciting the residents of multiple states must review the applicable fundraising registration requirements in each of them in order to comply. That’s what can make fundraising compliance so tricky for non-profits.
Typically, organizations must register with the state charity official prior to soliciting the residents of a state (not upon receiving funds). Organizations are then required to file annually to stay in good standing and maintain the privilege of soliciting in that state. Currently, no unified registration and reporting process exists, which means non-profits soliciting in multiple states must contend with and manage varying and, at times, complex requirements.
The Registration Process
The process of registration differs greatly in each state but generally consists of submitting a paper or an online application, a list of organizational records, copies of Form 990 and financial statements, and a filing fee. Annually, most states require a renewal application, Form 990 and financial statements, updates to any original information or documents submitted, and you guessed it, another filing fee. Unsurprisingly, state due dates also vary, which means nonprofits must keenly track their due dates and file throughout the year. Many states also require that organizations disclose certain information on their solicitation materials.
If these requirements were unfamiliar, you should by now realize that your nonprofit may have to register in several states, if not nationwide. You may, however, be asking, “Why now? We’ve never worried about fundraising compliance before and haven’t gotten caught.” These are valid questions, and ones certainly worth exploring.
First, charitable registration and compliance are the law. If that alone isn’t enough, consider that your donors and grantmakers can and do research charities before they give to them. Proper registration and reporting helps donors learn more about your nonprofit and increases their comfort in donating to you. Consider also that state charity officials are researching organizations online.
Your board too should remember that it has a fiduciary responsibility to run a compliant, ethical organization. As your nonprofit develops and executes programs that benefit your community, it should at the same time demonstrate its commitment to supporting them fully within the public’s eye.
The final answer is: Now is as good a time as any to become compliant. Registration can take place at any time, and states rarely enforce penalties for organizations registering in good faith. Now might just be the right time to focus on fundraising compliance for your organization.
Here’s the Good News…
You now might be asking, “You said you were going to make us feel better.” Well, I can try. Organizations presented with these requirements for the first time may feel upset or confused. While that’s understandable, I’d like to discuss a strategy for becoming practically and proactively compliant.
Please note, these are general high-level tips. Your organization will still have to fill in some of the details on its own.
First, review your “fundraising footprint,” that is, where you solicit and operate. This is commonly where your program activities take place and your donors are located, but not necessarily. Online methods of solicitation may passively reach donors in additional states.
Second, review where your organization must register to solicit, and where it is exempt or otherwise not required to file. Then, start a conversation with your board. Discuss the need to get registered and develop a plan of how and when registration is to take place. This is also a good time to review vendors and external options for managing state registrations.
Additionally, your board should review its budget for fundraising compliance. Understanding where your organization needs to register and how it will get there will give you a monetary estimate, but it’s the internal commitment to compliance that will take you the most amount of selling.
Then, just do it! Register and feel good that you’ve done so. Many times, registration encourages organizations to ramp up their solicitation efforts, which results in a return on the initial expense of compliance! How great is that? Finally, with any strategy, it’s important to review your fundraising footprint, your budget, and your results on a periodic basis.
Like I said, it’s not that bad.
Fundraising compliance isn’t the sexiest topic, but it’s not impossible to achieve. We hope this gives you enough to start a conversation within your organization around the importance of compliance and around shoring up an internal commitment to improving the overall transparency and health of an amazing sector. Good luck!
About the Author:
James Gilmer is a compliance specialist at Harbor Compliance. Founded by a team of government licensing specialists and technology trailblazers, Harbor Compliance is a leading provider of compliance solutions for companies of all types and sizes. Since 2012, we have helped more than 15,000 organizations apply for, secure, and maintain licensing across all industries. Harbor Compliance is not an accounting or law firm and does not provide tax, financial, or legal advice.