California AG Targets Fundraisers

March 2, 2015       The NonProfit Times      

Legislation unveiled by California’s top charity official would add disclosure requirements for paid commercial fundraisers and extend the statute of limitations from five years to 10 years in cases of misconduct.

Attorney General Kamala Harris and Assemblywoman Jacqui Irwin (D-Thousand Oaks) unveiled Assembly Bill 556. Current regulations in the Golden State allow third parties to solicit funds from donors without disclosing whether a portion of the gift would be diverted to a paid company by establishing their operations as “fundraising counsel” instead of “commercial fundraisers.”

Assembly Bill 556 would require disclosure prior to soliciting funds, in addition to extending the statute of limitations against the firms from five years to 10 years. Whether the solicitation is in print or electronically, the disclosure would be required to be in at least 12-point type.

The attorney general recently released a 342-page report summarizing the results of charitable solicitation campaigns conducted by commercial fundraisers in 2013. Of the $361.5 million raised by commercial fundraisers for charity and charitable purposes that year, $197 million went to the charity — an average of 54.5 percent. That is up from an average 37 percent in 2012, when $294.3 million was raised and $108.6 million went to charities. Information was obtained from 924 completed financial reports.

For-profit third party fundraisers played a role in a recent charity enforcement case, California v. Help Hospitalized Veterans, where a charitable fraud scheme included directing nearly three-quarters of the gross revenue made to for-profit fundraising campaigns in which the charity’s “fundraising counsel” was not required to disclose in their direct mail pieces that a paid professional fundraiser was profiting from each donation.

In addition, because of a gap in the government code’s statute of limitations for charitable misconduct lawsuits, not all parties responsible for the fraud in the Help Hospitalized Veterans case could be held accountable, according to the attorney general.

AB 556 will expand the statute to include enforcement actions against commercial fundraisers, fundraising counsel, and other third-party entities that aid and abet the exploitation of charitable assets. The 10-year window is often necessary in such cases, which are complex, fact-intensive, and cover misconduct occurring over an extended period of time.

Causes Count, a comprehensive report on California’s nonprofit sector, was issued late last year by the California Association of Nonprofits (CalNonprofits), which represents some 9,200 nonprofits. According to the report, California’s charitable organizations contribute 15 percent of the state’s economy.

The bill has the support of CalNonprofits. “We support legislation like AB 556 that closes gaps in the law that no legitimate charity needs to exploit to fulfill its mission,” said CEO Jan Masaoka.