The Michigan Attorney General’s Office has issued eight enforcement actions or notice of intended action against nonprofits during the past year. Digitization of nonprofit tax Form 990s has led to the increased use of data for compliance and enforcement by the New York state Attorney General’s Office.
The impact of technology on Form 990 and state registrations and some of the more recent regulator cases were among the topics during the public day of the annual conference of the National Association of Attorneys General (NAAG) and National Association of State Charity Officials (NASCO), with the theme of “The Impact of Technology on Charities Regulation,” held at the Westin Washington, D.C. City Center on Monday.
Colorado is one of 14 states where the Secretary of State is responsible for registering charities. A perennial question raised is whether a fundraising software provider is simply a vendor or becomes a professional solicitor, depending on the contract and arrangement with a charity, said Chris Cash, charities program manager in the Division of Licensing and Enforcement within the Colorado Secretary of State’s Office.
“It’s very common nowadays,” he said, with a blurring of lines between software producers and definitions of statutes. “Two years ago, we began to think, what can we do to ensure organizations that are registered are compliant with our laws,” said Will Bloomfield, an assistant attorney general in the Michigan Attorney General’s office, during a panel about state perspectives and priorities. “Why not ask them for solicitation materials and ask what their programs are, and see if the two align,” he said.
These are organizations that typically are not just operating in Michigan, according to Bloomfield, but national organizations that bring in several million dollars a year and operate in multiple states. “If they’re telling citizens in Michigan one thing that is not true, they’re likely doing similar things in other states,” he said.
Bloomfield cited the case of Wyandotte, Mich.-based Firefighter Support Services that claimed to help firefighters and their families, providing food, shelter, clothing and financial assistance. Upon inspection, the organization revealed it provided three grants totaling a fraction of the $3 million raised annually. The organization was dissolved and there were some penalties against its directors, he said.
“Sadly, there are others doing very similar things, raising several million dollars and telling donors one thing, but not actually doing that. It hurts the public but also hurts the charities,” he said. The office issued a cease and desist order earlier this year against VietNow national headquarters, a charity based in Illinois but soliciting in Michigan and a number of other states. The charity, Bloomfield said, claimed that if donors gave to the organization, some of their contributions would stay in their home state. The organization was asked to identify programs in Michigan but could not.
“We didn’t set out to dissolve them or end them, seeking penalties. We wanted to recover funds raised in Michigan,” he said, adding that they knew the nonprofit had done the same in other states. Other states quickly followed and with the cooperation of 26 states, the organization is now in the process of dissolving. “It doesn’t take much to review Form 990 and realize they’re not doing much,” Bloomfield said of questionable charities.
“It might be doing some accounting tricks, joint cost allocation, some fuzzy numbers with Gifts In Kind (GIK), or you might notice a certain fundraiser that organization uses that we questioned in past,” he said. “We need to regulate this space to ensure good charities can operate in this space, get rid of some bad actors so the charitable sector can put confidence into these organizations,” Bloomfield said.
The New York Attorney General’s Office uses both internal analytic resources to examine expense ratios in increasingly sophisticated ways, looking for patterns in the use of certain contractors, and related-party transactions, according to Yael Fuchs, an assistant attorney general in the Charities Bureau. Loans to officers and directors are “probably not a good idea and pretty much a strict liability offense in New York,” she said.
The AG’s Office also is trying to move quickly into the next step of risk analysis, examining financials to determine whether an organization is at risk of “potentially imploding,” Fuchs said. There have been a number of high-profile cases of New York City social service organizations that collapsed in recent years. The Single Portal Initiative by NAAG and NASCO aims to streamline inefficiencies in complying with registration requirements of 39 states through one website.
The initiative is targeting mid-2018 for “making sure we have something accessible,” said Adrian Bordone, vice president, strategic partnerships, at GuideStar, said during an afternoon panel about the impact of technology on Form 990 and registration. He anticipates high-level adoption from nonprofits in each of the 13 pilot states and quickly in others once the portal is up and running in the early part of next year. The next six to nine months will be used to ensure that states in the pilot project have any issues ironed out, he said.