Non-Profit Legal Matters

The Blog of the Law Firm for Non-Profits®

Florida Enacts Tighter Regulations on Charities and Fundraisers

RevisionsDo you remember when, in April, we told you that Florida’s lawmakers were concerned that 11 of the 50 worst charities were based in Florida. Now they are following through on their promise to do something about it.

Last month Florida Governor Rick Scott signed into law a comprehensive revision of the state’s charitable solicitation law. The aim of the law is to “prevent the misuse of Floridians’ charitable contributions by deterring fraudulent and deceptive organizations from soliciting contributions in [the] state.” Lawmakers also hope the new law will help Floridians make more informed decisions about the organizations to which they donate.

Among the new provisions are these more unique requirements:

  • Florida’s Department of Agriculture and Consumer Services (the Department is tasked with governing Florida charities) may deny or revoke the registration of a charity or a fundraiser, if it, or any of its officers, directors, or trustees, has had the right to solicit contributions revoked in any state or been ordered by a court or governmental agency to cease soliciting contributions in any state.
  • Any charity that solicits contributions in or from Florida residents must adopt a conflict of interest policy, which must require annual certification of compliance with the policy by all directors, officers, and trustees of the charity. A copy of the annual certification must be submitted to the Department with its annual registration statement.
  • A charity that has more than $1 million in total revenue and spends less than 25% of it on program service costs must complete an additional Department form, including the dollar amount and percentage of total revenue allocated to employees, fundraising, travel expenses, overhead, and charitable programs. The form must also detail any transactions with insiders (e.g., directors and officers).
  • Most charities that solicit contributions for specific disaster or crisis relief and receive at least $50,000 in contributions in response must file quarterly disaster relief financial statements detailing the contributions received based on the solicitations and how the contributions were spent.

Charity regulators across the country will be watching to see how effective these new provisions are. Would you like to see your state’s legislature adopt similar laws?

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NY Attorney General Announces $25 Million Settlement

SettlementEarlier this month, Attorney General Eric T. Schneiderman announced the $24.6 million settlement his office secured after an investigation into direct mail fundraising abuses at one of the country’s largest veterans’ charities, the Disabled Veterans National Foundation (DVNF). The AG’s Charities Bureau, which conducted the investigation, determined that the abuses were perpetrated by DVNF’s two outside for-profit direct mail vendors, Quadriga Art and Convergence Direct Marketing.

The investigation found that Quadriga produced and sent out misleading mailings and played the dominant role in running DVNF’s fraudulent fundraising efforts. Convergence provided fundraising advice to DVNF on the design and execution of its direct mail campaigns. Based on these roles, the AG found that the companies were fiduciaries to DVNF and owed duties and responsibilities as such, including making the interests of DVNF their primary concern.

The settlement requires Quadriga and Convergence to pay $9.7 million and $300,000 in damages, respectively. This $10 million will be distributed by the AG to support federally-managed research and development programs to improve the care, treatment, and rehabilitation services available to disabled veterans. Quadriga is also required to forgive $13.8 million in debt owed to it by DVNF and to pay $800,000 to defray the AG’s costs and fees.

And that’s not all. Quadriga and Convergence must also make significant changes to the way they fundraise including only entering into an agreement with a start-up charity if that charity has its own separate legal counsel; disclosing in writing any potential conflicts of interests to all clients; and providing clients with complete written descriptions of the elements of a proposed campaign, the cost and rate structure thereof, and the projected total costs and donation revenues associated therewith.

Under the settlement, DVNF is also required to make changes. It must reorganize its board of directors, including replacing all original directors, terminate Quadriga and Convergence as fundraising advisers for at least three years, and discontinue all fundraising tactics the AG found to be false and misleading, such as the use of fictional stories of wounded veterans supposedly helped by DVNF.

While many Attorneys General vigorously pursue claims against fraud and misrepresentation in charitable fundraising, this is the broadest and most sweeping settlement we have ever seen. AG Schneiderman seems to have expanded the Charity Bureau’s reach by an order of magnitude with this settlement.

Schneiderman was understandably pleased with the settlement, commenting: “Charities and their fundraisers that rely on direct mail campaigns can and must do better – and this settlement is an important milestone on the path forward.” Do you think the AG did enough? Did he do too much? Should Quadriga and Convergence be allowed to continue fundraising at all? Let us know what you think below.

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IRS Releases Progress Report on Exemption Application Backlog

BacklogIt may be hard to remember now why the scandal surrounding Lois Lerner started. Late last week the IRS reminded us. On Thursday it released an update on its progress reviewing the social welfare organization backlog. The backlog included organizations identified in May, 2013 as being selected by the IRS for additional scrutiny based on improper criteria.

The IRS reported that, as of June 18, 2014, it has closed 132 cases in the original backlog (91%), with 101 cases receiving favorable determination letters.

This news did not receive a positive reaction from David French of the American Center for Law and Justice, which represents 41 organizations in a suit against the IRS on the matter. He explained: “There is nothing satisfactory about the IRS process. It’s been conducted in a discriminatory and malicious manner since 2009, and that conduct continues.”

French noted that, of the 41 organizations participating in the lawsuit, 26 had their applications approved after long delays, 9 are still pending, 5 withdrew their applications, and 1 had its file closed after refusing to answer what French deems unconstitutional requests for additional information.

Too bad the IRS didn’t release a report on the tens of thousands of applications reportedly awaiting determination of 501(c)(3) status.

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Dog Ate My Tax Receipts Act

Dog Ate My Tax Receipts ActIn a surprising twist to the Lois Lerner saga, Rep. Steve Stockman (R-Texas) recently announced the Dog Ate My Tax Receipts Act. The proposed bill reflects Stockman’s belief that the IRS must allow taxpayers to offer “a variety of dubious excuses” for missing documentation as the IRS has done for the Lerner emails it has claimed are missing.

In Stockman’s own words: “Taxpayers should be allowed to offer the same flimsy, obviously made-up excuses the Obama administration uses.”

Under the proposed bill, taxpayers who fail to provide IRS requested documentation can offer any of the following excuses (which we hope you will enjoy regardless of their obvious political bent):

  • The dog at my tax receipts
  • Convenient, unexplained, miscellaneous computer malfunction
  • Traded documents for five terrorists
  • Burned for warmth while lost in the Yukon
  • Received water damage in the trunk of Ted Kennedy’s car
  • Forced to recycle by municipal Green Czar
  • Was short on toilet paper while camping
  • At this point, what different does it make?

Enjoy the full text of the proposed resolution here.

What other excuses would you like to use? Post your best below.

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Salary Increases at Grantmaking Organizations

Salary increaseAccording to a new survey by the Council on Foundations, the median salary for full-time positions at grantmaking organizations grew almost 3% from 2012 ($72,000) to 2013 ($74,061).

The Council on Foundations compiled the results from 936 U.S. grantmaking organizations, with 8,404 full-time paid positions. The organizations included 35% community funds, 28% private foundations, and 20% family funds. The remaining participants were other types of grantmakers, such as public charities.

The survey also revealed that job turnover was low in the past year for grantmaking organizations. Of those surveyed, nearly half of the organizations reported that no staff members left last year, and 41% of the chief executives and chief grantmaking officers have held their positions for at least 10 years.

Because of the low turnover and promotion from within, these organizations will soon be facing the challenge of succession planning. The survey found that 68% of foundation employees are 40 and older. During that same period, only 55% of the U.S. civilian work force was over 40 according to the Bureau of Labor Statistics. The Council on Foundations indicated that they will be watching this trend and tracking the changing demographics of the U.S. work force and its impact on grantmaking organizations.

How is your organization planning for succession?

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IRS Transfers Data on Nonprofits to FBI

TransferThe House Oversight and Government Reform Committee’s investigation into the IRS targeting scandal revealed last week the IRS transfer of 1.1 million-page database of information about tax-exempt organizations to the FBI. The Justice Department turned over the 21-disk database of information to the Committee in response to a subpoena.

Reps. Darrell Issa (R., Calif.) and Jim Jordan (R., Ohio) are “extremely troubled by this new information.” According to the House Republicans, the database included confidential taxpayer information that shouldn’t have been shared. They believe the transfer was to be used in investigations of nonprofit political activity.

In response, the IRS has stated that the information contained in the database was “publicly available material that is easily and routinely accessible.” However, the IRS recently admitted that it identified 33 tax returns on the database (out of the included 12,000) that inadvertently included some “nonpublic information.” The IRS noted that the returns including the nonpublic information were from a variety of organizations, most without connection to political activity.

This latest revelation is fueling the Committee’s review of the IRS targeting scandal, so get ready to hear more about the Committee’s findings in the upcoming weeks and months. We’ll keep you posted.

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Destroyed Lerner Emails: Convenience or Computer Crash?

Email crashIn a move that does nothing to inspire confidence, the IRS disclosed last week that two years’ worth of email messages to and from Lois Lerner, beleaguered former head of the exempt organizations division, were destroyed in a 2011 computer crash.

Representative Darrell Issa (R., Calif.), Chair of the Oversight and Government Reform Committee, is not happy. He believes this is additional evidence that the IRS is not fully cooperating with his Committee’s investigation into the IRS targeting scandal. In a letter to the commissioner of the IRS, John Koskinen, Issa wrote: “I will not tolerate your continued obstruction and game-playing.”

Koskinen will appear before the two House committees (Oversight and Government Reform and Ways and Means) investigating the scandal next week to address the thousands of emails lost. The committees will determine whether the lost emails involved obstruction or a violation of the Federal Records Act.

Democrats on the Oversight Committee claim that the IRS had previously disclosed that the emails had been lost and that Issa is now only feigning surprise.

The IRS has provided about 67,000 emails so far to investigators, including 24,000 that were lost in the computer crash but recovered from the accounts of Lerner’s correspondents.

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California’s Minimum Wage Increases

Minimum WageNo matter how you feel about it, on July 1, 2014 the minimum wage will increase from $8 to $9 per hour in California. Our friend Nicole Kamm from the law firm Lewitt, Hackman, Shapiro, Marshall & Harlan shared with us some examples of the impact this increase will have on your organization:

  • “Non-exempt employees paid less than $9.00 per hour must receive an increase in pay.
  • Certain exempt employees (executive, administrative, professional) must receive a monthly salary of at least twice minimum wage on a salaried basis (as well as meet other exemption requirements).  Effective July 1, 2014, the minimum monthly salary for exempt employees increases to $3,120.  Employees paid less will no longer meet the exemption.
  • Inside sales employees under Wage Orders 4 and 7 must earn more than 1½ times minimum wage for all hours worked (they must also receive more than 50% of their compensation from commissions).  As of July 1, 2014, to qualify as exempt, such employees must be paid at least $13.50 per hour.”

The change also brings with it new documents to post in your organization’s facility and new written notices to provide to non-exempt employees. If you need help preparing these documents, now is the time to ask. Contact Nicole or your employment attorney or HR professional for help.

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Is the New American Express Campaign Cause Marketing?

UnbankedAmerican Express recently released an advertisement titled “Spent: Looking for Change.” The ad watches more like a documentary about the high costs for low-income people living outside the traditional financial system. The film is narrated by Tyler Perry and follows four families who are “unbanked” or “under-banked” and must use alternatives to banking such as check-cashing services, payday lenders, pawn shops, and car title lenders.

The nearly 40 minute commercial is freely available online, features no brand content, and does not mention American Express until the closing minutes. An earlier version of the commercial featured no mention of American Express at all.

American Express’ group president for enterprise growth explained that the issue is “one we believe in pretty passionately.” American Express, he added, “wanted to create a documentary that brings to life this story in a way that a print ad or an article” could not. American Express has recently introduced products to address the concerns of the unbanked and the under-banked, but there is no mention of these products in the commercial.

This campaign may remind you of Chipotle’s recently commissioned web series about industrial farming.

Do you think the new American Express campaign will be more effective than traditional cause marketing? How could your organization use a documentary to tell its story?

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Google “Impact Challenge” Winners Announced

GooglImpacte’s Impact Challenge sought to find the nonprofits with the most innovative ideas for making the Bay Area stronger. After 200,000 votes were cast in the 10 days after Google announced its 10 finalists, the four winners will each collect $500,000 from Google to expand or implement new projects.

The winners are:

  • Hack the Hood, a summer program that teaches technical skills to at-risk youth and puts them to work for local businesses that cannot afford to hire full-time technical employees;
  • Health Trust, which, among other efforts to enable healthier living in the Bay Area, operates strategically placed food carts that offer nutritional snacks as an alternative to convenience stores;
  • Bring Me a Book, which aims to instill a love of reading at a young age and plans to provide libraries in the Bay Area with high-quality children’s books and read-aloud workshops for disadvantaged children; and
  • The Center for Employment Opportunities, which provides transitional employment and job placement services to ex-convicts.

The remaining top 10 finalists will each receive a $250,000 grant. 15 additional finalists were also selected to each receive a $100,000 grant to scale their impact in the community. All 25 organizations will receive technical support from Google and one year of support from Impact Hub SF.

How would your organization expand its impact with a Google grant?

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