The Nonprofit Integrity Act

1. The Nonprofit Integrity Act Sponsored by Association of Fundraising Professionals San Diego Presented by Lynda S. Moerschbaecher Attorney Carlsbad CA 760-804-8058 Feb. 4, 2005

2. Background of Act • Sarbanes-Oxley 2002 • New York Attorney General 2003 • California Attorney General 2004 • California Law as of 2005

3. Context of Act • Federal Legislation Proposed • States and Agencies setting own rules • Nonprofit opposition to detail • Unresolved issues in law

4. Layout of Act • Financial accountability and governance • Fundraising rules • Commercial fundraisers--Solicit and handle funds • Fundraising Counsel—Advise, plan, prepare for funds

5. Financial Accountability Statutory Scheme—7 parts • Filings with AG • Contents of filings • Time and manner of filings • Court accountings/other exemptions • Audited statements available to public • CEO/CFO compensation review • Gross revenues over $2 million

6. Covered Entities • Charitable corporations • Unincorporated associations • Trustees* • Legal entities holding property for charitable purposes

7. Trustees--Definition • Individuals, corporations, unincorporateds as trustee • Corporations, unincorporateds accepting property for charitable use • Corporations, unincorporateds administering charitable trusts

8. Exempted Persons • U.S., States, Territories, Possessions, D.C., Puerto Rico and subdivisions • Religious Corporations • Educational Institutions • Hospitals • Cemetery Corporations • Certain Licensed Health Care Plans

9. New Registration with AG • AG to maintain a new Registry • Describes trust or relationship under which property is held • AG can conduct “whatever investigation is necessary” to accomplish

10. What to File • Articles of Incorporation or governing document • Within 30 days of receipt of property • Future interests in trusts-no need to file

11. What Else to File • Periodic Written Reports • Under oath • Nature of assets held and their administration

12. Contents of Reports—AG Rules • Time, content, manner, filings set by AG • Classifications and differing rules • No unreasonable expense to charity • Exemption for certain trustee accountings • 4 months + 15 days after year-end

13. Organizations with Gross Revenue of Over $2 Million • Amount excludes government contracts and grants with Yellow Book accountings • Must have audited annual statements • Must have Audit Committee if a Corporation

14. Audited Financials • Independent CPA and GAAP Rules • Auditor independence per Yellow Book • Non audit services and independence • Consolidated statements OK • Available to AG and public w/in 9 mos. • Available as for IRS Form 990

15. Audit Committee • 13 Requirements • Very specific • Must be followed if covered entity is • Corporation • With over $2 mil gross revenue

16. Separate from Finance Chair not on Finance < ½ from Finance No more compensation than Board No material financial interest in NP biz Recommend retention/termination of Auditors Bd/Non-Bd, no staff May negotiate Auditor Compensation Satisfy itself affairs of NP are in order Review/determine to accept audit Assure non-audit services comply Approve performance of non-audit services May be part of parent board Audit Committee Rules

17. Audited Financials Under $2 Million • If audited statements prepared but not required, and • Organization is a covered entity, then • Audited statements must be available to AG and public (as for Form 990)

18. CEO/CFO Compensation • Board, authorized committee, trustee • Must review and approve compensation and benefits • Must be “just and reasonable” • Review initially, on renewal, on modification • Review by parent corp. committee OK

19. Fundraising Section of Law • Commercial fundraiser for charitable purposes • Individual, corporation, unincorporated association or legal entity who for compensation • Solicits in this state • Receives/controls $ • Employs person to do so

20. Exempted Persons • Trustee—see prior definition slide 7 • Charitable or eleemosynary corporation • Employee of registered fundraiser • Federally insured financial institution holding funds

21. Registration with AG • Prior to solicitation • Prior to receiving/controlling funds • On AG form, renewed each Jan. 15 • $200

22. Annual Filing • Financial accounting for all $ • Within 30 days after close of year • Detailed accounting—revenue, fees, salaries, expenses, distributions, names • Constructive trustee

23. Emergency or Disaster • File a notice with AG • Not less than 10 days prior to each campaign • Names, addresses • Methods • Start/end dates • Responsible person

24. Written Contract Required • Purposes • Obligations • Fixed or percentage fee • % to charity • Dates • Delivery of $ to charity within 5 days • In person, overnight, to charity account

25. Charity Right to Cancel • Within 10 days • No cost, penalty or expense • Effective 5 days after notice

26. Charity Right to Terminate • 30 day notice • Effective 5 days after notice • Immediate termination for • Material misrepresentation • Discovery of conviction of crime • Public disparagement of charity

27. Solicited Person’s Rights • % of total as fundraising expense • Within 5 days of request • Oral immediate response if requested in person

28. Fundraising Counsel • Individual, corporation, unincorporated association, legal entity • Who does all of following: • For compensation plans, manages, advises, counsels, consults or prepares materials for solicitation in California of funds, assets, property

29. But FR Counsel Does Not • Solicit funds, assets, property • Receive/control such funds • Employ or compensate a person to do so

30. Exempt Persons • Attorney, investment counsel, banker • Trustee • Charitable corporation or employee • Independent contractor for written material, graphics • Person with less than $25K gross revenue

31. Registration with AG • AG Form • Filing date Jan. 15 each year • $200

32. Annual Filing • Person for whom services performed • That written contract is in effect

33. Emergency/Disaster FR • Filing within 10 business days prior to services • Or not later than commencement • Names of FR Counsel and charity • Dates • Responsible person

34. Written Contracts • 10 requirements • Names, charitable purpose, obligations, fees, dates, no solicitation, charity control, right to cancel, right to terminate, any other info required by AG • Voidable without proper registration

35. Same Rights to Cancel/Terminate • 10 days cancellation • 30 days notice to terminate • Immediate termination for cause

36. General Rules for Both Categories • No misrepresentation of charitable purpose • Charity control of activity • Registered persons only • Registered charities only • Delivery of $ to charity • No unfair, deceptive practices

37. Many Other Details • Registration does not equal endorsement by AG • Commercial fundraisers must maintain financial records for at least 10 years

38. Forms on AG Website • www.ag.ca.gov/charities • Form CT-1 (registration) • Form RRF-1 (annual renewal) • Form CT-3CF (Fundraising counsel annual registration-2003 form) • Form CT-11CF (Notice of Intent to Solicit