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A Primer in Virtual Fundraising Compliance

WRITTEN BY JAMES GILMER, HARBOR COMPLIANCE

As more nonprofits leverage technology to reach new sources of support and even apply for grants, their fundraising activities tend to move online and, consequently, across state lines. While email, websites, social media, and crowdfunding platforms offer nonprofits unbridled reach for a relatively low cost, it’s critical to remember that the Internet is no longer the Wild West. There are rules now, for goodness sake!

We’ll take a look at fundraising compliance under the particular lens of organizations that raise funds online. In other words, just about everyone these days. We’ll cover the basics of charitable solicitation registration and reporting, disclosure requirements, and some additional practical strategies.

If you’re not aware of state charitable solicitation laws, first take a moment to familiarize yourself. Forty-five states have laws governing charitable fundraising activity. In most of those states, nonprofits are required to register with the state’s charity official prior to asking for donations. Then, you have to file annually to remain in good standing and maintain the privilege of fundraising with residents of that state. California is an exception to this rule, requiring charities to register within 30 days of receipt of donation.

In about 25 states, organizations are also required to disclose certain information to donors at the point of solicitation. It follows, then, that nonprofits fundraising in multiple states are presented with the challenge of understanding and managing a patchwork of varying and, at times, complex requirements.

Nonprofit development initiatives have greatly benefited from technology platforms through their low cost and scalability. As it relates to state requirements, however, virtual fundraising activities very quickly reach prospective donors and residents of multiple states. In turn, this may trigger broad registration and other compliance responsibilities, which nonprofits of all types and sizes should be prepared to meet.

This begs the obvious question, “Where does an organization have to register?”  With traditional fundraising methods, like sending snail mail or making phone calls, the answer is pretty clear. Organizations can easily review their fundraising footprint, research the requirements of the state where the prospective donor lives, and file the appropriate forms to meet the applicable requirements. When it comes to fundraising virtually, however, nonprofits may be both actively and passively asking for contributions, and doing so as part of a “mix” of varied solicitation methods. At the same time, many state laws, which were written prior to the Internet era, give little clarity into what constitutes “solicitation” when that fundraising activity takes place virtually.

To help settle the score, in 2001, the National Association of State Charity Officials (NASCO) developed some guidelines for virtual fundraising. These results are known as the Charleston Principles. These principles generally state that organizations that target the residents of a state using online methods, and those receiving repeated or substantial contributions from a given state, must register or file an exemption. NASCO left the decision to adhere to the Charleston Principles, and even definitions of things like “repeated” and “substantial,” up to the individual states to decide. Consequently, while some states adopted the Charleston Principles into legislation, many others either use them simply as administrative guidelines for charities regulation and enforcement, or have decided largely to ignore them. 

While the Charleston Principles alone give nonprofits little in the way of a roadmap, they do help organizations form two general strategies for complying:

1.  Pursue nationwide registration

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Many organizations find it easier to register and report each year than to research and interpret state requirements in relation to their activities. Nationwide registration is more practical when an organization reaches a certain size, budget-wise, by base of donor support, or overall breadth of fundraising activity. By registering and maintaining licenses to fundraise wherever requirements exist, nonprofits can take comfort in knowing they can freely fundraise everywhere (by lawful means, of course). These nonprofits can take advantage of their registration status to ramp up fundraising activities, engage new donors and grantmakers, and even see a return on the cost of registration. 

Note: Organizations registering in new states for the first time should be aware of additional state-specific requirements. Requirements include audited or reviewed financial statements. Appointment of a registered agent is required in the District of Columbia and several other states.

2.  Register on a state-by-state basis

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This strategy generally pertains to organizations with smaller budgets and more local or regional bases of support. It still involves reviewing the organization’s fundraising footprint and submitting paperwork to the state’s charity officials. The difference is, these nonprofits then confine their fundraising activities to where they are registered, exempt, or otherwise not required to file. Practically speaking, this means smaller organizations must be careful of where and how they fundraise, and generally may be expected to add language to their virtual fundraising informing donors from where the organization is accepting contributions.

Ultimately, the course of action depends on a few key factors:

  • Current program and fundraising activity: Each organization naturally has a unique mission and presence in the world, which determines what, where, and how state requirements apply.
  • Plans for growth: State registration can take weeks or months and involve both staff time and the monetary cost of filing fees. Proper planning helps organizations become compliant in advance of opportunities with new donors or in new places, which may offset or even result in a return on the up-front resource investment.
  • Budgeting for compliance and being proactive: Registration can take place at any time, and most states do not penalize organizations for registering in good faith, which means now is as good a time as any to pursue a compliant fundraising strategy. Nonprofit boards and leadership should assess their risk, develop a strategy proactively, and make compliance a line item in the organization’s annual budget. 

By now, you should understand the basics of fundraising compliance, and how it forms the foundation of an organization’s fundraising strategy, especially when soliciting virtually. Taking proactive steps to comply benefits both your organization and its donors and improves overall transparency. Take the opportunity to share this information and communicate its importance to your board, and more importantly, take action!

Harbor Compliance does not provide tax, financial, or legal advice. Use of our services does not create an attorney-client relationship. Harbor Compliance is not acting as your attorney and does not review information you provide to us for legal accuracy or sufficiency.

James Gilmer
Compliance Specialist
Harbor Compliance

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