California Gets New Fundraising Disclosure Law

September 22, 2015       Mark Hrywna      

New legislation enacted in California will clarify regulations surrounding fundraising counsel as well as custody or control of funds, among other definitions related to charities.

A.B. 556 was signed into law yesterday by Gov. Jerry Brown after unanimously sailing through the Senate and Assembly this summer. It will take effect Jan. 1, 2016.

The measure will clarify “custody or control of funds” and defines “caging companies,” according to the Direct Marketing Association Nonprofit Federation (DMANF). The bill also prohibits fundraising counsel from being compensated by a percentage of donations received, which is generally a best practice for fundraisers but was not part of the law in California. It also expands the existing 10-year statute of limitations for charitable enforcement cases to include for-profit fundraising firms and other third parties.

Fundraising campaigns involving fundraising counsel will now have to disclose whether a portion of donor contributions will be directed to the paid fundraiser, according to the attorney general’s office.

Attorney General Kamala Harris and Assemblywoman Jacqui Irwin (D-Sherman Oaks) unveiled the legislation in the spring but DMANF and other nonprofits lobbied for amendments.
The original measure required — prior to soliciting funds — disclosure of whether a portion of the gift would be diverted to a paid company by establishing their operations as “fundraising counsel” instead of “commercial fundraisers.” Whether in print or electronic, the solicitation would have required a disclosure of at least 12-point type.

Reporting provisions in the original bill would have imposed thousands of dollars on nonprofits through the cost of compliance for a new disclosure, according to DMANF. New language will provide “clear direction to fundraising counsel for charitable purposes and clear and important distinction of the roles of commercial fundraising for charitable purposes.”

The original legislation, which had the support of CalNonprofits, stipulated that every transaction that involved a fundraising counsel or solicitation by a nonprofit to which a fundraising counsel contributed, would have to be disclosed.

The legislation was prompted by recent litigation of Help Hospitalized Veterans, a charity accused of misuse of donors funds in fundraising campaigns. Two years ago, Harris and HHV reached a settlement in which HHV’s officers and directors resigned. A lawsuit alleged that they breached their fiduciary duty by wasting charitable assets on golf memberships and excessive compensation for the group’s former president, the late Roger Chapin, and previous president, Michael Lynch.

The changes “clarify the legal responsibilities and prohibitions for charitable fundraising organizations and fundraising counsel and properly support the state’s policies protecting donors and fostering charitable giving,” said Senny Boone, DMANF general counsel and executive director.

“This bill will support consumer confidence for the more than 70,000 active nonprofit organizations doing great work in California,” said Assemblywoman Jacqui Irwin (D-Thousand Oaks) in a press release, calling it a collaborative effort that will increase transparency in charitable donations.