The Nonprofit Integrity Act
Sponsored by Association of Fundraising Professionals San Diego Presented by Lynda S. Moerschbaecher Attorney Carlsbad CA 760-804-8058 Feb. 4, 2005
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Background of Act
Sarbanes-Oxley 2002 New York Attorney General 2003 California Attorney General 2004 California Law as of 2005
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Context of Act
Federal Legislation Proposed States and Agencies setting own rules Nonprofit opposition to detail Unresolved issues in law
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Layout of Act
Financial accountability and governance Fundraising rules
Commercial fundraisers--Solicit and handle funds Fundraising Counsel—Advise, plan, prepare for funds
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Financial Accountability Statutory Scheme—7 parts
Filings with AG Contents of filings Time and manner of filings Court accountings/other exemptions Audited statements available to public CEO/CFO compensation review Gross revenues over $2 million
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Covered Entities
Charitable corporations Unincorporated associations Trustees* Legal entities holding property for charitable purposes
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Trustees--Definition
Individuals, corporations, unincorporateds as trustee Corporations, unincorporateds accepting property for charitable use Corporations, unincorporateds administering charitable trusts
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Exempted Persons
U.S., States, Territories, Possessions, D.C., Puerto Rico and subdivisions Religious Corporations Educational Institutions Hospitals Cemetery Corporations Certain Licensed Health Care Plans
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New Registration with AG
AG to maintain a new Registry Describes trust or relationship under which property is held AG can conduct “whatever investigation is necessary” to accomplish
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What to File
Articles of Incorporation or governing document Within 30 days of receipt of property Future interests in trusts-no need to file
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What Else to File
Periodic Written Reports Under oath Nature of assets held and their administration
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Contents of Reports—AG Rules
Time, content, manner, filings set by AG Classifications and differing rules No unreasonable expense to charity Exemption for certain trustee accountings 4 months + 15 days after year-end
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Organizations with Gross Revenue of Over $2 Million
Amount excludes government contracts and grants with Yellow Book accountings Must have audited annual statements Must have Audit Committee if a Corporation
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Audited Financials
Independent CPA and GAAP Rules Auditor independence per Yellow Book Non audit services and independence Consolidated statements OK Available to AG and public w/in 9 mos. Available as for IRS Form 990
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Audit Committee
13 Requirements Very specific Must be followed if covered entity is
Corporation With over $2 mil gross revenue
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Audit Committee Rules
Separate from Finance Chair not on Finance < ½ from Finance No more compensation than Board No material financial interest in NP biz Recommend retention/termination of Auditors Bd/Non-Bd, no staff
May negotiate Auditor Compensation Satisfy itself affairs of NP are in order Review/determine to accept audit Assure non-audit services comply Approve performance of non-audit services May be part of parent board 16
Audited Financials Under $2 Million
If audited statements prepared but not required, and Organization is a covered entity, then Audited statements must be available to AG and public (as for Form 990)
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CEO/CFO Compensation
Board, authorized committee, trustee Must review and approve compensation and benefits Must be “just and reasonable” Review initially, on renewal, on modification Review by parent corp. committee OK
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Fundraising Section of Law
Commercial fundraiser for charitable purposes Individual, corporation, unincorporated association or legal entity who for compensation
Solicits in this state Receives/controls $ Employs person to do so
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Exempted Persons
Trustee—see prior definition slide 7 Charitable or eleemosynary corporation Employee of registered fundraiser Federally insured financial institution holding funds
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Registration with AG
Prior to solicitation Prior to receiving/controlling funds On AG form, renewed each Jan. 15 $200
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Annual Filing
Financial accounting for all $ Within 30 days after close of year Detailed accounting—revenue, fees, salaries, expenses, distributions, names Constructive trustee
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Emergency or Disaster
File a notice with AG Not less than 10 days prior to each campaign Names, addresses Methods Start/end dates Responsible person
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Written Contract Required
Purposes Obligations Fixed or percentage fee % to charity Dates Delivery of $ to charity within 5 days
In person, overnight, to charity account
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Charity Right to Cancel
Within 10 days No cost, penalty or expense Effective 5 days after notice
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Charity Right to Terminate
30 day notice Effective 5 days after notice Immediate termination for
Material misrepresentation Discovery of conviction of crime Public disparagement of charity
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Solicited Person’s Rights
% of total as fundraising expense Within 5 days of request Oral immediate response if requested in person
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Fundraising Counsel
Individual, corporation, unincorporated association, legal entity Who does all of following:
For compensation plans, manages, advises, counsels, consults or prepares materials for solicitation in California of funds, assets, property
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But FR Counsel Does Not
Solicit funds, assets, property Receive/control such funds Employ or compensate a person to do so
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Exempt Persons
Attorney, investment counsel, banker Trustee Charitable corporation or employee Independent contractor for written material, graphics Person with less than $25K gross revenue
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Registration with AG
AG Form Filing date Jan. 15 each year $200
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Annual Filing
Person for whom services performed That written contract is in effect
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Emergency/Disaster FR
Filing within 10 business days prior to services Or not later than commencement Names of FR Counsel and charity Dates Responsible person
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Written Contracts
10 requirements Names, charitable purpose, obligations, fees, dates, no solicitation, charity control, right to cancel, right to terminate, any other info required by AG Voidable without proper registration
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Same Rights to Cancel/Terminate
10 days cancellation 30 days notice to terminate Immediate termination for cause
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General Rules for Both Categories
No misrepresentation of charitable purpose Charity control of activity Registered persons only Registered charities only Delivery of $ to charity No unfair, deceptive practices
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Many Other Details
Registration does not equal endorsement by AG Commercial fundraisers must maintain financial records for at least 10 years
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Forms on AG Website
www.ag.ca.gov/charities Form CT-1 (registration) Form RRF-1 (annual renewal) Form CT-3CF (Fundraising counsel annual registration-2003 form) Form CT-11CF (Notice of Intent to Solicit
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