As we wrap up giving season and reflect on 2012, we took a look at local changes to financial transparency rules in the nonprofit community. Topping our list are the new rules to be implemented by the Colorado Secretary of State’s office pertaining to solicitations for charitable donations. The process started nearly a year ago when House Bill 12-1236 was introduced, and ultimately passed and signed into law last April. The goal behind the changes is to increase information readily available to donors and thereby reduce opportunities for consumer fraud, and protect legitimate charities from unauthorized solicitations which can damage their credibility and that of the nonprofit community as a whole. The changes also include a more efficient filing system to register and report charitable solicitation activity.
Colorado has been ahead of the curve when it comes to registering and tracking charities and their paid fundraisers. With changes to the Colorado Charitable Solicitations Act (the “Act,” C.R.S. 6-16-101 et seq.) and the new rules necessary to implement those changes becoming effective January 1, 2013, charities, paid solicitors and professional fundraisers can look forward to the following notable changes:
- The Act clarifies deadlines that paid solicitors (contracted to fundraise on behalf of a charity) must observe to track and report all charitable solicitations (their contracts to fundraise must be in writing, notices must be filed at least 15 days before the beginning of a campaign, and they must file financial reports with the Secretary of State within 90 days of the conclusion of the campaign).
- When making an appeal by telephone, the paid solicitor must disclose that they are being paid to ask for donations, identify themselves (by first and last name) and the charity on whose behalf they are soliciting, and must disclose—prior to the donor’s agreement to make a donation—the extent to which a donation may be tax deductible.
- Some definitions in the Act have been revised. Namely, grant writers are not considered paid solicitors unless their fee is paid based on a percentage of funds solicited and raised by the grant, and fundraising for a named individual is not defined as a charitable appeal (no registration is required).
- E-filing is mandatory through the Secretary of State’s web based charities system, and applies to charities, commercial co-ventures, professional/paid solicitors, and fundraising consultants. The Colorado Secretary of State has reduced filing fees to $1, and there is presently no filing fee to submit campaign financial reports, however late fees will apply on a sliding scale.
- The schedule for the Secretary of State to issue registration renewal reminders or delinquency notices is not defined by the Act, but will be available on the Secretary of State’s website.
- Charities are no longer required to request a separate three-month extension with the Colorado Secretary of State to file an initial or annual financial report if they’ve already filed for an extension of time with the IRS. Absent an extension, financial reports are still due on the 15th of the fifth month after the close of the charity’s fiscal year. The Act includes a definition for what circumstances constitute (and do not constitute) a “bona fide emergency” that would prevent timely filing. The rules also specify the steps necessary for extensions beyond a three month period.
- The Secretary of State may require charitable organizations to submit a copy of their IRS Form 990 to comply with Colorado’s financial reporting requirements.
- Monetary donations must be deposited in a financial institution within two business days (non-monetary donations are not bound by this rule), allowing charities to maintain tighter control of funds.
Various types of organizations are excluded from the registration requirement, but may still opt to register to demonstrate the financial transparency of their organization:
- Churches, as distinguished by the IRS from religious organizations.
- Candidates for political office, political parties or PACs which are covered separately under the election commission filing requirements.
- Entities receiving less than $25,000 per year in funding over and above government grants or support from other 501(c)(3) granting organizations.
- Organizations that receive money from less than ten sources (i.e. private foundations).
For more information, and the full text of the new rules, see the Secretary of State’s rulemaking page at http://www.sos.state.co.us/pubs/rule_making/rules.html. Colorado is one of 40 states with charitable solicitation reporting requirements. We are keeping an eye on consolidated filing trends – for more information on the multi-state filer project, see www.multistatefiling.org.