Donations and grants are far more than financial transactions. Every dollar you receive is an affirmation, a vote for change, an investment in a shared passion from a like-minded partner. That’s why trust is so important in the nonprofit sector.
Yet these are times of waning trust, as evidenced by the Edelman Trust Barometer, an annual trust and credibility survey conducted by global consulting firm Edelman Intelligence. The survey charted a sharp decline in confidence in U.S. institutions over the past year, part of a larger downward trend in public trust. Nonprofits earned higher scores than businesses, government, and the media, yet trust in nonprofits nonetheless dropped 22 points, from 73 percent in 2017 to 51 in 2018.1
At the same time, charitable giving is at an all-time high,2 with the lion’s share of donations and growth coming from individual donors. Clearly, donors are ready to support the nonprofits they trust.
One way to build trust with potential donors is to invest in proactive compliance. By fulfilling regulatory obligations such as charitable solicitation registration, timely annual reports, and other state requirements, your nonprofit is doing more than shuffling paperwork. You’re building a strong, compliant foundation that demonstrates your commitment to sound governance and safeguards your nonprofit from costly disruption.
Following are nine ways that compliance affects your ability to accomplish your mission.
1. Safeguards your reputation. Given the public’s trust issues, it’s especially important for nonprofits today to meet all of their registration and reporting requirements in states where they operate.
2. Encourages donations. Many state attorney general offices and other government agencies direct donors to do their homework before supporting a charity, and organizations such as Charity Navigator and GuideStar provide resources to make the task easy. Compliance ensures that donors find information that affirms their faith in your organization.
3. Reduces very real risks. States can levy significant penalties against nonprofits that fail to register for fundraising when required. In addition, state agencies and the Internal Revenue Service can initiate audits of nonprofits, including whether the organization has met state requirements. In some states, officials can revoke a charity’s state tax exemption for failure to file a registration, an annual report, or other required documents.
4. Protects your leadership. Nonprofit board members and other leaders can be held financially and legally liable for any regulatory errors or oversights by the nonprofits they serve. In California, for example, officers and directors may be held personally liable for penalties levied for failure to meet state requirements, on the grounds that “use of charitable assets to pay avoidable penalties would constitute waste and misuse of charitable assets.”3
5. Attracts grant funding. Part of a grantmaker’s duty is to invest in nonprofits that are capable of meeting their goals and having an impact. Meeting state requirements demonstrates sound governance, reliability, and sustainable operations.
6. Expands your reach. Registering for fundraising allows your nonprofit to reach out to donors with confidence. Registering in multiple states or nationwide opens the door to broader opportunities such as fundraising online.
7. Opens the door to cause marketing. Fundraising registrations pave the way for joint marketing efforts with for-profit partners such as point-of-sale donations, sales of branded merchandise, coupon nights, charity events, and more.
8. Lets you hire fundraising professionals. Bringing in professional fundraising help can improve your fundraising efforts, but they require specific registrations and filings.
9. Prevents disruptions. Citations, penalties, loss of tax exempt status, or loss of the ability to operate in a state are major disruptions that can prevent you from fulfilling your mission and making a difference.
You’ve put in all the hard work of envisioning change, bringing in good people to make it happen, and setting up the infrastructure to make it all work. Compliance is the foundation that protects what you’ve built and reassures the public that you’re in a position to drive the change they’re hoping to see.
If you would like some guidance regarding which state requirements apply to your operations, contact us or give us a call at 1-888-995-5895. We’re here to help.
1. “Wise Giving Wednesday: Drop in Trust in Non-Profit Organizations in U.S.,” Give.org. Web.
2. Giving USA 2017: Total Charitable Donations Rise to New High of $390.05 Billion, Giving USA, 12 June 2017. Web.
3. “Final Statement of Reasons, Proposed Adoption of Regulations Pursuant to the Supervision of Trustees and Fundraisers for Charitable Purposes Act,” California Office of the Attorney General. Web.