For many nonprofit organizations, grant funding provides essential support for community programs and special projects. At the same time, development teams use a variety of methods to engage with donors, validate program efforts, and raise supplemental funding. Whatever your organization’s fundraising “mix” looks like, it’s critical to understand that compliance with state, federal, and grantmaker requirements forms the core of a successful strategy.
This post will address the basics of fundraising compliance, acting as a resource as your organization goes through the grantseeking process. This framework for nonprofits looking to scale their programs and fundraising activities uses a Plan, Do, Check, Act approach.
First, let’s talk about regulatory compliance, specifically registration and annual reporting with state charitable solicitation authorities. Forty-five states have laws governing charitable solicitation activity, designed to educate and protect donors, establish reporting standards for nonprofits, and improve the overall transparency in the sector. States define “solicitation” rather broadly, but it generally refers to the act of asking for (and not necessarily receiving) contributions by a number of methods, including maintaining a website where donors may contribute, sending emails, and making phone calls. These activities may trigger the need to register with the state charity official and maintain licensure through annual reporting of financial, solicitation, and program activity. Many states even consider applying for foundation-based grant funding to be a form of solicitation, and many grantmakers ask for proof of current registration as a stipulation of funding.
Generally, nonprofits must comply with a given state’s requirements prior to soliciting its residents. Unsurprisingly, the requirements in each state are different, which means nonprofits planning to raise critical program funding at scale must develop a strategy to navigate a complex landscape of registration and reporting requirements. Most nonprofits we work with are aware of their own state’s requirements and have made good faith efforts to comply. However, out-of-state requirements often come as a surprise, commonly resulting from a grantmaker request, a donor inquiry, or worse, at the request of a state regulator. Not only can penalties for noncompliance and bad donor relations arise, but quite simply, nonprofits are losing where they could be gaining.
The question, then, is “What are the steps we can take, right now, to comply?” While every organization is different, the high-level approach is similar: Plan, Do, Check, Act. We’ll leave it to you to fill in the details.
- Plan
Review your program and fundraising activities, both currently and over the next 12-18 months. Take a look at the states in which you are or will be operating, a.k.a. your “footprint.” Do your activities trigger the need to register, apply for an exemption, or disclose any information on your solicitation materials? Beyond state-specific requirements, will any of your current or future funders ask for proof of your nonprofit’s state registration along with other organizational records and policies? From this process, you’ll quickly discover any gaps in your compliance responsibilities.
During this step, you’ll need to be aware of the time and resources involved. Registration with charitable solicitation authorities can take weeks or months due to delayed state processing times and disparate submission criteria. The time spent preparing, submitting, and tracking application submission, in addition to the raw cost of state filing fees, is a real expense, but one your organization should understand and budget for, especially in relation to any upcoming projects, events, or grant submission deadlines. In other words, planning well in advance can help your organization meet statutory and grantmaker deadlines with ease.
- Do
Now that you’ve reviewed your operational footprint, identified gaps, and synced your program and fundraising wristwatches, it’s time to take action! Designate individuals, typically those with access to organizational information and records, to submit registration materials in a timely fashion. A word of forewarning, however: do this thoroughly! Submitting complete, correct applications along with all of the requisite filing fees, attachments, and financial statements smooths the path to licensure and reduces the chance of costly delays. This is typically the step where seeking external assistance to manage compliance requirements enters the conversation.
Good news, registration with state charity officials can take place anytime, and states rarely penalize groups registering in good faith, even those that have been soliciting for years. What are you waiting for?
- Check
By now, your organization has complied with state requirements, and your planned programs, grantseeking, and solicitation efforts are in full swing. It’s time for some self-analysis. Chances are, you were able to leverage your registration status with grantmakers to obtain funding and enhance credibility with other individual and corporate donors. Remember the “expense” of becoming compliant? You may have already seen a return on that investment. In the process, you may have widened your donor engagement and identified program or funding opportunities in other states, which means it’s back to the drawing board!
- Act
Because state compliance requirements, like certain grantmaker reporting requirements, are annual in nature, there is a natural cadence to revisiting steps 1 through 3. Your self-assessment probably also revealed that some on-the-fly adjustments are needed. Therefore, take some time with your board and leadership to review your new footprint and additional opportunities that may have surfaced. Also be sure to review the planning process itself, including the time and resources involved. Can you be more efficient this time around?
By now, you should understand the basics of charitable solicitation compliance. You probably realize that it underpins various organizational initiatives, ranging from your programs to grantseeking and fundraising. For that reason, it’s important for you to share your knowledge with your board, leadership, and development staff. Then, with proper planning, execution, and self-analysis, your organization can use this framework to form its own unique strategy to positively impact growth.
Harbor Compliance is not an accounting or law firm and does not provide tax, financial, or legal advice.
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Founded by a team of government licensing specialists and technology trailblazers, Harbor Compliance is a leading provider of compliance solutions for companies of all types and sizes. Since 2012, we have helped more than 15,000 organizations apply for, secure, and maintain licensing across all industries.