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Fundraising Compliance: What Every Board Member Should Know

Posted by Sharon Cody on Feb 5, 2020 1:27:32 PM

Fundraising Compliance | Writing a check

Whether you’re a new board member or a seasoned officer, part of your board’s collective duty is to ensure your nonprofit’s legal compliance. If you are reading this, you’re probably far enough in your nonprofit journey to understand your board’s obligation to ensure your organization completes and files a Form 990 and regularly withholds and pays employment taxes. But did you know that if your nonprofit solicits funds, your board must also ensure your nonprofit’s compliance with applicable state-specific laws regarding fundraising licensing and reporting?

According to the IRS regulations, a nonprofit governing board should be “informed and active in overseeing a charity’s operations and finances.” In addition, most state charity regulators impose fiduciary duties of care and loyalty on nonprofit board members. Meeting state fundraising and reporting requirements is a core component of these duties. Fundraising compliance is not just an obligation; it’s an opportunity to fuel your nonprofit’s mission and drive its growth.

Understanding the board’s responsibility

Nonprofits are obligated to be compliant in each state in which they fundraise. Forty-one states require nonprofits to register before soliciting for donations, and 25 states require nonprofits to include special disclosure statements on fundraising appeals. Nonprofits that hire fundraising professionals, engage in charitable gaming, offer charitable gift annuities, or enter into cause marketing co-ventures have additional registration obligations in some states. And there are ongoing reporting obligations for many of these state-specific fundraising licenses.

Failing to meet these requirements may lead to citations and penalties that can expose not just your nonprofit, but you and other board members to real risks — from reputation damage to personal liability. Many states publish lists of fraudulent and delinquent charities on their websites. If your board doesn’t understand and monitor compliance with state fundraising and reporting requirements, both your nonprofit’s reputation and your own are put at risk.

States issue citations and penalties for noncompliance not just to nonprofits, but to board members as well. In California, for example, nonprofit officers and directors may be held personally responsible for penalties levied for failure to meet state requirements on the grounds that “use of charitable assets to pay avoidable penalties would constitute waste and misuse of charitable assets.”

Messaging compliance to fuel your mission

These regulatory obligations also offer opportunities for nonprofits. Board members, staff, and volunteers all fuel your nonprofit's success and tell its story in the community, but your nonprofit's fundraising compliance tells a story too — one that can demonstrate transparency, accountability, and commitment to responsible governance.

It is increasingly common for donors, corporations, and foundations to actively research nonprofits to identify which are worthy of their trust — and dollars. And those state websites that publish lists of delinquent charities also make the status of compliant nonprofits available to potential supporters. Make sure your nonprofit is listed among them.

But don’t stop there! With the number of organizations competing for philanthropic attention and dollars, your nonprofit’s compliance is an opportunity to boost not just trust and reputation, but financial support.

Include messages about your compliance on fundraising appeals, grant applications, and your nonprofit’s website. Train your fellow board members, staff, and volunteers to bring up fundraising compliance at events, donor meetings, and during calls to potential funders and sponsors. Making compliance part of your nonprofit’s brand will encourage potential donors and grantmakers to give and open doors to new corporate partnerships.

Making fundraising compliance a board priority

Educate your fellow board members on the many reasons why fundraising compliance is both a requirement and an opportunity. Then, make fundraising registration and reporting a priority. Include it in your board’s strategic planning, annual budgeting, and ongoing monitoring. To learn more, this fundraising compliance guide is a great place to start. Explore how your nonprofit can achieve, maintain, and maximize fundraising compliance. 

Topics: Roles and Responsibilities, oversight, Fundraising

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