Fundraising Compliance: An Important Part of Donor Stewardship

We are fast approaching that time of year when many states require renewal of fundraising licenses. (Did you know? Most states require charities, professional fundraising consultants, professional fundraising solicitors, and other related businesses to qualify for and maintain licenses in order to raise funds in the state.)

A charity’s primary responsibility is to meet the needs of those they serve, and to be accountable to their donors for ensuring they comply with state laws that govern how they work and manage their donors’ contributions.

You’re probably wondering why states require this or that piece of information. The answer is simple: to protect donors. Legal compliance reinforces confidence among donors and prospects that their chosen charities use their money wisely. Compliance is a critical part of donor stewardship.

Yet, fundraising compliance isn’t the most exciting part of fundraising. (In fact, many agree that it can be rather mind-numbing!) But it’s an important component of strong donor relationships.

Here’s what you need to know:

The Basics That Are the Same Across Most States

If you want to raise money in most states, you need to register, and that usually means paperwork. Each state has different requirements and the paperwork can be daunting.  

• Forty states require a charity to be registered or apply for exemption. Some of those states provide certain types of charities exemptions without requiring the charity to apply for that exemption (for example, certain religious organizations that meet a state’s definition as such may be exempt without having to apply for that exemption). There are also exemptions for charities that are classified as educational, health services, in the service of veterans; charities that receive a minimal amount of donations (typically under $25,000 annually); and even charities that only solicit members for donations. However, if a charity chooses to employ a fundraising professional, whether a consultant or solicitor, those exemptions may no longer apply.
• Forty-two states require professional fundraising solicitors to register and twenty-three states require a professional fundraising consultant to register. Yes, they are different and, yes, they have different requirements for registration and reporting. Both kinds of entities are also required to submit the contracts they hold with their client charities to the states in which they seek or raise funds, as well as financial reports for the work they conduct on behalf of their client charities.

 Here are answers to your 4 fundraising compliance FAQs:

1. Who should register my nonprofit with the state(s)?
   There are many companies and law firms that can manage these registrations for you. If you plan to register in all applicable states, you may find it worthwhile to retain a company that specializes in fundraising registration, as it is their job to ensure your ongoing compliance. A charity that is registering in only a few states may prefer to learn those individual state requirements and have a member of their team manage those items.
2. How can I prepare for my state registration?
   For many states, renewal paperwork is due at the same time every year. Whether you are preparing the documents yourself or you use an outside firm, it is a good idea to start gathering the materials that will be required about two months prior to them being due. This might include a list of board members, a list of professional fundraisers that have been hired in the previous year, copies of contracts, balance sheets comparing donation revenue to the costs spent to raise that money, etc. Over a year, a lot can change!
3. What happens if you miss a deadline with a state?
   States are willing to work with an organization to ensure they can be returned to compliance quickly. Communication is the key! Email the state’s charitable compliance department, talk directly with a state’s compliance specialist, and make sure to follow up. Ignoring communications from a state is a sure way to be fined and create unnecessary difficulties in working with a state to correct your compliance status.
4. What happens if you do not have all the necessary pieces to complete a registration application (whether a new application or renewal)?
   Again, states are willing to work with an organization, especially on renewals, sometimes providing extensions in order to give the charity the additional time necessary to gather all of the required documents, such as a 990. Clear and direct communication goes a long way in both understanding a state’s requirements as well as ensuring you meet those requirements in a timely manner.

The simple fact is that if a charity is corresponding with a donor or potential donor (be it mail, email, or telephone call) to request a donation, then the charity is obligated to understand and comply with the registration requirements of that donor’s state. Even if the charity uses a professional fundraiser, the charity is still responsible for complying to the regulations of any state in which they raise funds.

While complex and sometimes tedious, compliance with a state’s regulations provides donors a level of confidence in the work of a charity. And that confidence is one very important reason that a donor supports a charity. It means they not only believe in the work being done, but that their charity’s work — behind the scenes — can be trusted to use their contributions wisely.

Ready to learn more about fundraising compliance? Harbor Compliance offers a free webinar — Charitable Solicitation: What Does It Take to Be Compliant?