Charitable solicitation compliance, which keeps your nonprofit’s state-specific license to fundraise current, is a cornerstone of running a successful nonprofit. Fundraising compliance is the law, enables your staff and volunteers to fundraise successfully, and encourages savvy donors and grantmakers to give. Your board of directors should care tremendously about fundraising compliance as it ultimately affects your nonprofit's financial ability to fulfill its mission.
1. Compliance is not optional, it is the law
Forty-one states have registration requirements for nonprofits intending to solicit citizens within their borders. Approximately four more states have laws on other aspects of charitable solicitation. Failure to file the proper registrations and renewals can lead to fines totalling hundreds or thousands of dollars. Penalties for multiple and egregious infractions can be even more severe, leading to public notices of noncompliance or your right to solicit being revoked.
2. Compliance is a primary duty of serving on the board of a nonprofit
Individually and collectively, the board of directors are the strategic leaders of your nonprofit. Among the board’s top responsibilities, as outlined by the IRS, is compliance. Board members should be active and informed, and always work to ensure charitable funds are used to forward your nonprofit’s mission. Board members are expected to know and to follow IRS and state charitable solicitation laws as part of their main duties. Just as “Officer, I didn’t see the speed limit sign” is unlikely to get you out of a moving violation, “I was not aware of my state’s charitable solicitation requirements” is unlikely to help your charity avoid penalties for noncompliance.
3. Your board is the driver of fundraising success
The most successful and sustainable fundraising initiatives begin with the board of directors. In addition to the hard-and-fast qualifications the IRS expects, your directors should be fully engaged with your mission, willing to leverage their connections to garner public support, and have the ability to provide financial input. By working from the inside out, your board becomes the primary driver of charitable giving. Through compliance, they also set the standard for proper giving and solicitation throughout the rest of the organization.
4. Your board is accountable to your donors, employees, and volunteers
State charitable solicitation laws are in place to protect donors from illegitimate and fraudulent charities. By properly registering and staying compliant, a charity provides current leadership, operational, and financial information to the state government. The state, in turn, makes the information available to the public upon request. Donors can and do use state databases to ensure an organization is legitimate. If you haven’t registered to solicit funds in a state, you might be losing donations and not even know it.
While your employees and volunteers are making phone calls, staffing events, meeting with donors, and applying for grants, they can be expected to present proof of 501(c)(3) exemption and state charitable registration. Your board should fully equip your foot soldiers to win prospective donors. Make sure your charity has properly registered, that you include state-specific disclosure statements, and that your staff and volunteers have easy access to your compliance documentation. Without being registered or having this proof on hand, you may find your request for grant funding denied, your meeting cut short, or leave a donor feel unassured.
5. Compliance helps preserve the reputation of the organization and individual directors
Regardless of the size and prominence of your organization and its directors, noncompliance can tarnish the reputation of the organization as a whole and reputations of individual directors within your community. Many states, such as Virginia, Pennsylvania, and California, publish lists of fraudulent and delinquent charities on their websites. Whether a single donor discovers your charity is not registered, or there is a massive PR backlash, the organization’s overall reputation may suffer. In high profile cases involving scandalous or delinquent charities, officers and directors can quickly find themselves under public scrutiny for their leadership. By staying compliant at the organizational level, you also help your officers and directors preserve their personal reputations.
As leaders, your board of directors has a responsibility to your donors, the community, and your organization. By setting the course for compliance, your board establishes a culture of trustworthiness and lays a foundation for successful fundraising initiatives. For more information on your state’s charitable solicitation requirements, download this Charitable Solicitation Compliance white paper or visit our Fundraising Compliance Guide.
The preceding is a guest post by James Gilmer, Compliance Specialist for Harbor Compliance, a leading provider of compliance solutions for organizations of all types and sizes. Headquartered in Lancaster, Pennsylvania, Harbor Compliance partners with organizations in every state and over 25 countries abroad to help solve the most challenging compliance problems.