When nonprofits prepare to launch major fundraising campaigns, they should pause before rushing for the telephones or penning invitations to black-tie dinners.
First, they must undergo the often complicated process of registering with the regulators in states where they plan to solicit funds, experts say.
These measures are designed not only to help the state keep detailed records of nonprofits and third-party fundraisers, but also to keep donors from being defrauded by bogus charities, says Eric Peterson, attorney with Minneapolis-based Dorsey & Whitney.
“These types of fraudulent schemes go on all the time, and are particularly prevalent after disasters” such as Hurricane Katrina and the Sept. 11 terrorist attacks, he says. “These measures are meant to reduce the number of ‘bad actors’ out there.”
Though some nonprofits may feel the registration requirements do not apply to them, the definition of charitable solicitation encompasses more than many nonprofits realize, says Terry Knowles, registrar of charitable trusts for the Office of the New Hampshire Attorney General.
“No matter how you ask for a donation, whether it’s in a newspaper, direct mail, telephone call, Salvation Army bucket, all of those constitute solicitations for charitable donations,” she says.
Thirty-eight U.S. states, as well as the District of Columbia, require some type of registration for charities trying to solicit funds, Peterson says.
Most of these accept the Unified Registration Statement, a form created in 1997 in an attempt to standardize registration methods nationwide.
This form requests demographic information such as name and address, the purpose for which raised funds will be used, and details about any prior problems with officers, directors, employees or fundraisers, Peterson says.
Along with the registration statement, many states require supporting documents such as a tax-exemption determination letter, audited financials, articles of incorporation and a most recent Form 990, he says.
Also, if nonprofits use third-party fundraisers, the registration statement asks who they are and how they are compensated.
Regardless of a nonprofit’s location, it should start the registration process at least two to three months before launching a fundraising campaign to avoid unpleasant surprises, Peterson says.
He estimates the filing fee at a total of $3,500 to $4,000 if a nonprofit registers in all 39 states that require registration.
Once registered, nonprofits are free to fundraise until the time comes to renew their registrations. Many states require nonprofits to renew every year, which costs about the same or slightly less than the original registration, he says.
“It’s good to have a spreadsheet or calendarized reminder, since renewals can vary,” he says.
The situation becomes even more problematic when nonprofits solicit funds outside their home states, experts say. By law, nonprofits must follow the registration requirements of every state where they fundraise, Knowles says.
Considering the tremendous differences between registration requirements from state to state, this may be a daunting task, she says.
States have vastly different rules about which types of nonprofits have to register, which documents are required, whether nonprofits must renew their registrations, and even which government agencies process the registrations, she says.
She recommends NASCOnet, an online resource that helps nonprofit navigate the complex differences between requirements by state.
And those nonprofits that solicit funds online open a new can of worms for registration requirements.
The Charleston Principles, designed to address Internet solicitation, were approved as advisory guidelines by the board of the National Association of State Charity Officials in 2001.
According to the principles, any nonprofit that uses online fundraising tools to target donors in a specific state has to register in that state, Peterson says. Even if nonprofits are not targeting donors in a particular state, they must register there if they begin to notice “repeated and substantial” donations coming from that state, he says.
Just like registration requirements, consequences for noncompliance vary widely, Peterson says.
Failure to register is classified as a felony in some states, while others charge fines of up to $10,000 per violation.
While most agencies are fairly lenient for a first or second offense, Knowles says, they are quick to take action when nonprofits repeatedly violate the law.
And though nonprofits seldom get more than a “slap on the wrist” for first-time mistakes, the stakes are much greater than fines and fees, Peterson says.
“It can really impact your reputation,” he says. “You don’t want to be on the front page of your local newspaper saying that you didn’t follow the law when asking for money.”
The need to stay in compliance is even greater as donors become more cautious about giving their money away.
“You’re making an investment in your campaign,” he says. “You don’t want to give anyone pause, especially in times of economic uncertainty.”