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New warnings from the Attorney General

New Warnings from the Attorney General

Is your nonprofit a target for the Attorney General? This week, the head of the California Attorney General’s Charitable Trust Section, Tania Ibanez, provided an update on its enforcement of laws regulating charities. That update revealed that the Attorney General is scrutinizing charities that solicit donations for purposes related to veterans, cancer treatment and animal rescues. This is because of recent instances of such charities engaging in deceptive solicitations or failing to meet compliance requirements with the Registry of Charitable Trusts. This heightened scrutiny applies to all charities that operate in California.

As for veteran organizations, simply having the word “veteran” in the charity’s name is enough to draw the attention of the Attorney General. For information on the Attorney General’s concerns about veteran-related charities, see this Attorney General publication issued for donors.

Another red flag that will draw the Attorney General’s attention is if gifts-in-kind constitute a significant portion of a charitable organization’s donations. Ms. Ibanez provided an example of a suit filed by the Attorney General against a cancer-related charity. That suit alleged that the charity had overstated values of gifts-in-kind to report that 97.7% of its resources were devoted to programming. Instead, according to the Attorney General, the charity misrepresented its efficiency by inflating the value of pharmaceuticals it had received. The complaint specified that the correct percentage was less than 60%. This suit resulted in a $500,000 judgment against the charity. For more information on reporting gifts-in-kind properly, see the Attorney General’s publication on the subject.

Charities cannot afford to ignore their legal obligations. Those that do can receive a cease and desist order from the Attorney General. Such orders prohibit a charity from operating, including raising funds, conducting activity and even paying its bills. In addition, the Attorney General imposes penalties that often are in the tens of thousands of dollars. Suspension or revocation of a charity’s right to hold, raise or spend charitable funds may lead to that charity’s suspension by the Franchise Tax Board and Secretary of State.

This update from the Attorney General is a good reminder that charities are highly regulated. Failure to comply comes at a steep price. Charities should regularly consult with their professional advisors to help ensure they are always in compliance.