What is a Professional Fundraiser? 

A professional fundraiser (a/k/a commercial fundraiser for charitable purposes, professional solicitor or paid solicitor) is generally defined as a person or entity who, for compensation, directly solicits contributions on behalf of one or more charitable organizations.  A professional fundraiser may have temporary custody of contributions and is permitted to receive percentage-based compensation.

Examples of professional fundraising activity include telemarketing, in-person meetings with prospective major donors, vehicle donations, thrift store operations, event ticket sales, auctions at charity events (including the acquisition of auction items), and operation of certain internet fundraising platforms.

Where Does a Professional Fundraiser Need to Register?

Generally, a professional fundraiser is required to register in any state where they are directly soliciting charitable contributions on behalf of a charity.  With respect to internet solicitations, a state may impose its registration and reporting statutes only on a PFR’s activities that meet the constitutional requirement of “minimum contacts” with that particular state.

Acknowledging these jurisdictional limitations, and given the practical reality that applying (and enforcing) their registration requirements to every internet solicitation is virtually impossible, the National Association of State Charity Officials (NASCO) issued guidelines in 2001 known as the Charleston Principles (the “Principles”).  The Principles are not binding law; however, NASCO encourages state charity regulators to use them as practical guidelines for applying their state laws to online fundraising activities.

The Principles summarize the application of state registration and reporting regimes to PFRs as follows:

1. Entities domiciled within the state.

An entity is domiciled within a particular state if its principal place of business is in the state. However, according to the Principles, a physical presence within a state, such as a branch or regional office, may also be indicative of appropriate state jurisdiction.

2. Out-of-state entities whose non-internet activities would require registration in the state (e.g., inbound telephone or face to face solicitations in the state).

3. Out-of-state entities that solicit through an interactive or non-interactive website and either (a) specifically target persons physically located in the state or (b) receive contributions from the state on a repeated and ongoing basis, or a substantial basis, through or in response to the website solicitation.

The Principles leave the definition of “repeated and ongoing” or “substantial” to the individual states.  Currently, three states, Colorado, Mississippi and Tennessee have, by regulation, formally adopted numerical thresholds.  In Colorado, an entity receives “repeated and ongoing” or “substantial” contributions if it receives at least fifty online contributions, or the lesser of $25,000 or 1% of its total contributions, in online contributions during a fiscal year, respectively.  In Mississippi, an entity receives “repeated and ongoing” or “substantial” contributions if it receives at least twenty-five contributions or $25,000 in online contributions in a year.  In Tennessee, an entity receives “repeated and ongoing” or “substantial” contributions if it receives at least one hundred contributions or $25,000 in online contributions in a year.

Professional Fundraising Contracts

In addition to the registration requirements, state charitable solicitation statutes require that contracts between a charity and a PFR be filed in the states where solicitation activity is occurring and that they include certain provisions. Common contract provisions required by state statute including the following:

• Legal name/address of the charity
• Statement of the charitable purpose for which the solicitation campaign is being conducted
• A clear statement of the fees to be paid to the professional fundraiser
• The effective/termination dates of the contract
• A statement that the charity exercises control and approval over the content, volume and/or frequency of any solicitation
• An estimate of the amount the charity is expected to receive as a result of the solicitation campaign
• California and New York require lengthy cancellation provisions designed to allow the charity to cancel the contract within 10-15 days of signing without penalty
• Several states require the contract to be signed by two authorized officials of the charity

Campaign Financial Reports

Nearly all states that regulate PFRs require them to file a report that accounts for the funds raised in the campaign.  The reports generally require disclosure of the total amount raised, the fee paid to the PFR, and certain campaign expenses.  These reports are required within a certain time period following the end of the campaign (typically ninety days) or, for ongoing campaigns, annually in connection with the anniversary date of the campaign.

Bonds

As part of the registration process, PFRs are required to obtain a surety bond.  The purpose of the bond is to guarantee against malfeasance in the conduct of charitable solicitations.  The face amount of the bonds required by the states range from $10,000 to $25,000.

Point of Solicitation Disclosures

Virtually all states require a PFR to identify its status as a professional fundraiser, and many require the PFR to disclosure that the PFR is being compensated.  If asked by the potential donor, the professional fundraiser must truthfully disclose how much of the donation will go to the charity.

In addition, a number of states require solicitation disclosure notice statements on all written materials used when soliciting contributions.  The required disclosures must include how additional information about the organization may be obtained as well as certain state regulatory agencies’ contact information where donors can obtain further information. Solicitation disclosure notice requirements apply to charitable organizations as well as professional fundraisers.

The solicitation disclosure notice is required to be included on every printed solicitation or written confirmation, receipt, and reminder of a contribution. Customary examples of printed solicitations are direct mail solicitations, fliers, or solicitations contained in a newsletter.  Often overlooked, however, are emails or the organization’s website, which, if it includes a donate button or other request for a donation (including a link to the donate button), is considered a form of written solicitation.

The services that professional fundraisers provide can be of great value to nonprofit organizations. Understanding the regulatory framework governing professional fundraisers will help avoid missteps that can lead to actions by state regulators, including fines and penalties. It is incumbent on both the professional fundraiser and its charity clients to take the steps that ensure compliance under state charitable solicitation laws.  If in doubt, it is always a good idea to seek legal counsel.

The post Are You Paid to Solicit Charitable Contributions for a Charity? You May Need to Register as a Professional Fundraiser first appeared on Perlman Sandbox.

PPGF, the charitable arm of PayPal, Inc., is a 501(c)(3) tax-exempt nonprofit that allows donors to contribute funds online to PPGF and select a charity that will ultimately receive the benefit of their contribution. Donors’ contributions are aggregated and distributed to the donors’ chosen charities.

The state regulators’ concerns focused on PPGF’s disclosure and grantee vetting practices. Specifically, their concerns included whether PPGF adequately disclosed to donors that (1) donations made through the PPGF website were made to PPGF rather than the intended charity selected by the donor, (2) that PPGF could reassign a donation by exercising its “variance power” when the selected charity did not pass PPGF’s vetting process, and (3) the length of time for donors’ donations to reach the intended charities.  While PPGF does not collect fees from donors or charities for this service, charities receive contributions more quickly if they maintain a PayPal account, a fact that the regulators claim had not been adequately disclosed.

The agreed upon reforms focus on modifying the disclosures to ensure that donors know: (1) that they are donating to PPGF rather than the selected charity, (2) that PPGF has the ability to reassign funds to a similar charity and the circumstances when PPGF may reassign funds, including a clear explanation of any vetting processes, (3) the fees associated with use of the platform (or the absence of fees), (4) the expected time frame for the selected charity to receive the grant, and (5) the implications of being an enrolled charity vs. an unenrolled charity[1]. PPGF also agreed to notify donors when it redirects a donor’s charitable contribution to an organization other than the one selected by the donor.

Of particular note is PPGF’s commitment to make many of these disclosures “unavoidable and prominent,” which means that “the information is not included in an optional pop up window or on another page accessed by a link on the original page. It also means that the information must be located on a page that each and every donor must access prior to donating to PPGF and in a position on that page that is in immediate proximity to a necessary field or button used by each and every donor.” PPGF’s agreement to notify donors when their donation is redirected to another organization may also set a new industry-leading standard of transparency among online platforms that utilize an intermediary charity to facilitate donations to various causes.

As part of the settlement, PPGF has donated $200,000 to the National Association of Attorneys General (“NAAG”) to help defray costs associated with charity regulators’ enforcement activities, and to provide training and education to those regulators.

The states participating in the settlement include the attorneys general of Arkansas, Colorado, Connecticut, the District of Columbia, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Texas, and Wisconsin, as well as the Secretary of State of North Carolina.

State charity regulators’ concerns regarding transparency by online fundraising platforms are not new. Several years ago, the National Association of State Charity Officials (“NASCO”) posted tips on internet and social media fundraising to help charities and fundraising platforms understand their rights and obligations, and to help donors make informed giving decisions.  The guidance included tips directed at fundraising platforms, encouraging them to prominently disclose key information about the platform to better educate charities and donors using the platform.

In 2016, NASCO formed a Crowdfunding Working Group comprised of charity regulators from various states. Members of the working group collaborate to learn from each other how the states handle issues relating to fundraising via third party websites and social media.

Given the significant regulatory focus on donor disclosures in online fundraising platforms, companies operating such platforms should review their current website disclosures to ensure that key information is prominently disclosed to donors to help them make informed decisions when making charitable contributions through the platform.

[1] Charities that maintain a PayPal account are considered “enrolled charities.”

The post PayPal Giving Fund Enters Multi-State Settlement to Ensure Transparency to Donors first appeared on Perlman Sandbox.