Who is Accountable for Fundraising?

Transparency is key: when you raise funds, you register.

In the USA, laws require each 501(c)(3) to register as a fundraising entity with each state funds are substantially raised in. Consultants must also do so, in order to establish clear accountability for charitable activity. State governments care, and so should donors.

Professional fundraisers generally come in two flavors: in-house and consulting. Anyone who solicits donations for a cause while working as a direct employee – a Director of Development, for example – is covered by that organization’s registration(s).

Consultants should register individually as licensed solicitors/fundraisers in each state they operate in. (FYI to our friends in the UK, an American “solicitor” is not a lawyer or advocate, but instead someone who asks for funding.)

Legal Obligations

So why do organizations need to register?

State governments – usually a State Attorney General’s office, or a state bureau of charities – just want to know that a charitable organization exists and is operating in a state. This awareness creates a paper trail and channel of accountability so that if anything goes wrong, legal actions can be taken.

Legal ramifications of not registering are usually in the form of fines, but the repercussions most apparent when there are accusations of fraud or improper use of funds. If a fundraiser does not register, they are not prevented from working, but anyone donating to or engaging services from an unregistered entity does not have strong legal recourse if something does go wrong.

Each state reviews contracts with charitable organizations to make sure that fundraising consultants and fundraising events are held to the same standards of transparency. Otherwise, organizations could circumvent this reporting by taking funds from an event or a fundraiser without having to list the sources of the donations.

If any charitable funds are raised in the United States, an organization or consultant must register in at least one state – the state where the majority of proposals are sent, or the majority of funds are solicited. If your donors are primarily in New York, for example, but you send one proposal to a foundation in Kansas, you do not need to register in Kansas because you don’t regularly solicit funders there.

Best Practices for Organizations

All in-house fundraising is covered by your organization’s registrations. Your Director of Development does not need a separate license or registration with additional states.

Unpaid fundraisers, such as board members or volunteers, do not need registration or licensing. Supporters in crowd-funding events like marathons or bake sales are volunteers.

You may want to consider acquiring Directors and Officers Liability Insurance (aka “D&O” insurance). As at many corporations and for-profit companies, nonprofit leaders are held accountable for the actions of the organization. D&O can protect your leadership in the way that state registration protects your fundraisers.

It’s also important to be aware of the variations between different state regulations. If you send proposals or solicit funds in multiple states, there’s no one-size-fits-all set of rules. For example, some states like California require events to be registered at least a month in advance, and that you inform the police department of the city you’re hosting the event in of your intent to sell tickets in order to collect donations.

There are also a number of federal requirements, which are easily fulfilled at an organizational level. For example, you must have a whistleblower policy in place, as well as policies for conflict of interest and donor privacy. You’ll also need to make these policies publicly available, which is most easily done by publishing them on your organization’s website.
As with any company or organization, the behavior of vendors you engage can have an impact on your reputation, or even tie you to accusations of wrongdoing. The key reason to properly vet vendors like fundraising consultants is to ensure your organization’s activities are all truly above board and beyond reproach.

Best Practices for Consultants

Like any good consultant, here at PDA we are registered, licensed solicitors – in our case, mainly in New York State. Due diligence for consultancies includes a review of prospective client organizations to make sure the 501(c)(3) has all the required registrations in place for each state in which there is substantial fundraising. Compliance with regulations may seem like an obvious thing to do, but it’s easy to let licenses lapse or to forget about renewals. Fundraising consultants should be aware of renewal timelines, and keep track of the need to register in a new state if fundraising increases there.

There are also steps consultants can take that go beyond the basic legal requirements. For example, it is PDA general practice to give clients with assignments of one year or more a 30-day cancellation clause.

Most importantly, a fundraising consultant NEVER – absolutely never ever – works on commission. No trustworthy fundraising consultant takes a cut of charitable donations.

Tips: The Careful Consultant

Are you engaging a fundraising consultant in any solicitations? You should be able to ask your consultant whether they are licensed to operate in the regions you cover.

Why is this important?

Paper Trail

In the United States, laws require charities to make a list of their contributors available to the public. This is one way in which transparency in charitable activities is maintained. Likewise, when you use a consultant, their registration as a solicitor/ fundraiser adds to the paper trail to maintain accountability.

Peace of Mind

Your organization abides by regulations – you should be able to trust that your vendors and consultants do, too. When you engage a fundraising consultant who is a registered solicitor, you can be assured of your fundraiser’s commitment to accountability.

People First

Your organization is made of people – the population you serve, your employees, stakeholders, and donors. Keep your people safe by protecting the reputation of your organization through careful compliance and due diligence when engaging vendors whose behavior reflects back on you.

Positive Effect

If your consultant is registered and licensed to fundraise, it’s likely you’re working with someone who is a true professional. Having a “real deal” fundraiser gives you confidence that you’re getting the best results in raising money to support your cause.