As Giving Tuesday launches across the U.S. today, public charities are making a final push to meet their year-end fundraising goals. Whether a charity is using traditional or innovative fundraising tools (or both), transparency and legal compliance should be the hallmarks of any solicitation campaign.

Charitable fundraising must comply with both charitable solicitation and consumer protection laws. If a charity has not laid out a structured approach to fundraising compliance, it risks attracting scrutiny from state and federal regulators, who are increasingly collaborating on enforcement, as discussed at Venable's November 10, 2016 program. There is no time like the present: now is the time to plan for compliance.

Transparency in Solicitations

A strong multi-state and Federal Trade Commission (FTC) collaboration continues to emerge – the FTC and the National Association of State Charities Officials (NASCO) have announced plans to co-host a conference next March with a focus on "how consumers evaluate and respond to various charitable solicitation practices and the role for consumer protection." While this conference will undoubtedly provide useful guidance to the industry in the near future, charities can take steps today to enhance the transparency of their solicitations:

  • Evaluate solicitations in all platforms across the organization, including mail, website, emails, scripts, volunteer talking points, brochures, and reminder letters for accuracy and consistency;
  • Ensure that truthful statements are made about the use of funds, including whether the funds are restricted or unrestricted, used in a particular location or for a particular purpose (e.g., nationwide or local community program), applied to the project promised, or limited to covering overhead costs;
  • Accurately reflect any conditions for matching gifts in solicitations, and make clear if there is a cap on any matching program;
  • Ensure that written and oral solicitations include disclosures that are required by state charitable solicitation laws as well as federal law (e.g., the FTC's Telemarketing Sales Rule);
  • Provide complete information about the charity's name, physical location, and contact information; and
  • Provide easy access to additional information about the charity, such as annual reports, board members, and financial information.

Regulatory Compliance

Regulators commonly advise donors to research any charity to which they are considering donating, and advise charities to perform due diligence on fundraisers with whom they may contract. Checking off the list of all applicable registration and reporting requirements goes a long way in protecting a charity's fundraising efforts. A charity should adhere to these baseline requirements:

  • Engage leadership to emphasize to the organization's staff and volunteers the importance of full legal compliance;
  • Confirm that a reliable system is in place to track fundraising expenses and donations and manage the contractors the charity uses to meet the charity's legal reporting requirements;
  • Remember that even the passive solicitation of contributions (e.g., via the use of a "Donate Now" button on the organization's website) requires written disclosures under some states' laws;
  • Confirm that state charitable registrations are current in the District of Columbia and all of the 39 states that require registration and reporting; include states where the charity is domiciled, donors are specifically targeted, or donations are received or solicited on a repeated or substantial basis;
  • Confirm that federal tax acknowledgment letters are sent for contributions of $250 or more, and for quid pro quo contributions of more than $75; and
  • Confirm that the IRS Form 990 information discloses the fundraising expenses of the charity, including the details required in Schedule G for fundraising events and fundraising professionals if reporting thresholds are met.

Donor Intent

Well-functioning charities understand that donor relations are their lifeblood, and take special care to honor a donor's intent. Unfortunately, sometimes donors' intended use of their contribution becomes disconnected from the charity's actual application of the donated funds. While donors are often the party most likely to complain about the perceived misuse of their contribution, state attorneys general and the FTC are broadly empowered to protect consumers' interests. Most state attorneys general are specifically authorized to protect charitable assets. A charity should take the following steps to ensure that gifts received are used for the charitable purpose(s) that the donor intended:

  • Confirm that donations are tracked and allocated to specific budgets that are aligned with the donor's intent;
  • Adopt a process to evaluate and report on the use of funds—broadly to the public or to a donor specifically—in accordance with the stated intention in the solicitation;
  • Confirm that conditions are met for any donor-matching program;
  • Work with independent auditors to evaluate systemic compliance with donor intent;
  • Review any promises made by the charity to protect donor "rights" to ensure that they are reasonable and do not endanger charitable assets—and then abide by them;
  • Evaluate post-solicitation communications to ensure that they reflect donor intent and do not conflict with the original solicitation messages;
  • Utilize well-drafted gift agreements where appropriate for larger gifts; and
  • Establish a procedure for addressing donor complaints that is sensitive to donor relations while including appropriate measures to protect charitable assets in cases where a demand is made to return a gift.

Contractor Management

Charities must be vigilant when contracting with other parties for fundraising services, such as professional fundraising firms, online "crowdfunding" platforms, and companies that act as commercial co-venturers by promoting the message that the sale of goods and services will benefit a charity or a charitable purpose. By controlling these activities, the charity is protecting itself, its mission, and its donors. Old and new forms of solicitations need equal attention. A charity can adopt the following safeguards to ensure sound management of its charitable assets:

  • Conduct due diligence on contractors, including interviewing references, confirming state registration (where required), and reviewing public enforcement announcements issued by federal and state regulators;
  • Comply with the charity's conflict of interest policy by vetting potential contractors against interested parties;
  • Enter into strong written contracts that protect the charity's brand, messages, money, and termination rights and comply with all state law requirements;
  • Require any subcontract to have flow-down obligations from the primary contract;
  • Ensure that fundraising professionals engaged by the charity are registered as required by state law and that all reporting is monitored by the charity;
  • Engage caging services or similar controls over any funds received by a third party to ensure that funds are delivered in a timely manner to the charity;
  • Adopt a compliance process to reconcile contractors' records with the charity's records, including regular evaluation of contractors' electronic and paper accounts of revenue, interviews of staff, and visits to the facilities;
  • Adopt internal management processes for review and approval of all solicitation materials, including scripts and other written content;
  • Incorporate instructions to fundraising professionals to use unambiguous information for donors or prospective donors about the identity of the fundraising professional, and to avoid conflating the professional fundraiser's identity with that of the charity;
  • Mandate that any online "crowdfunding" agreement requires disclosure to the public of all fees and percentages going to the crowdfunding company and the amount, if any, that is tax deductible as a charitable contribution; and
  • Require a contract that ensures legal compliance with the 26 state laws for commercial co-ventures (CCVs), that includes accounting and other safeguards, that requires charity pre-approval of clear and conspicuous promotional language, and that includes other requirements designed to avoid deceptive or misleading fundraising (e.g., if there is a cap on how much the commercial co-venturer will donate to the charity, that needs to be clearly disclosed to consumers).

The FTC and NASCO emphasized in their announcement of the March 2017 conference that "Americans contribute a lot of their hard-earned money to charity—more than $373 billion in 2015, which averaged about $1,100 per adult and more than $2,100 per household." Now, more than ever, charities—including their leadership—need to embrace key practices to bring themselves into full compliance with the federal and state laws and regulations governing charitable fundraising.