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Revision to the Charitable Organization and Solicitations Act

As nonprofits raise funds for their organizations, ensuring accountability and ethics are top priorities. Hence, it is imperative that a potential donor know if a charity is legitimate, how much of the proceeds are going to a charity and how much is going to a fundraiser, whether contributions are staying in the local community or going to an out-of-town or out-of-state agency, and so on.

The purpose of the 1975 Act is to regulate organizations and persons soliciting or collecting contributions for charitable purposes. However, due to loopholes within the Act, it's difficult to track noncompliant organizations. Also, consumers do not have quick or easy access to information on nonprofits.

MNA has long advocated for revisions to the statute to more effectively enforce the laws, to prevent misleading information regarding nonprofits from being given to consumers and to ease the frustration of nonprofits trying to comply with the differing IRS and Attorney General requirements.

In March, Senator Tom George (R-Kalamazoo) introduced SB 1115 to revise this statute. Since March, MNA along with other nonprofits and the Nonprofit Council for Charitable Trusts (advisory committee to the Attorney General) have worked with Senator George and the Senate to provide a revision to the statute that ensures accountability while not inferring with the good work of Michigan nonprofits. In July, the Senate passed SB 1115 with the understanding that the interested parties would continue to adjust the bill in the House.

As passed by the Senate, the following is a summary of SB 1115:

• Requires charitable organizations and professional fund-raisers to register with the Attorney General (rather than be licensed by the Attorney General)
• Changes the licensing requirement for charities that solicit and receive contributions in excess of $8,000 during a 12-month period to requiring registration only for charities that solicit and receive contributions in excess of $25,000 during a 12-month period
• Adds the following registration fees for charities:
• No fee if the gross receipts were less than $25,000
• $20 if the gross receipts were more than $25,000 but less than $100,000
• $50 if the gross receipts were at least $100,000 but less than $500,000
• $100 if the gross receipts were at least $500,000 but less than $1,000,000
• $200 if the gross receipts were $1,000,000 or more
• Mandates that the registration fees and all other fees/fines from this act must go to the state treasurer to deposit in a charitable organization and solicitations fund, which shall only be directed to gathering and providing the public with information regarding persons subject to this act. The Attorney General must report to the Michigan legislature regarding how the funds will be used
• Increases the misdemeanor fine from $500 and/or imprisonment for up to six months to a fine of $5,000 and/or imprisonment for up to six months for certain activities. In addition a person who is found guilty of a felony, for violations of sections of this bill, may be imprisoned for not more than five years and/or fined $20,000.
• For charities and fundraisers the bill specifies certain types of practices that would be prohibited, and violation of these provisions could result in denial, suspension or revocation of registration, or a civil fine of up to $10,000
• In addition to financial statements, an organization would be required to submit the following information:
• Whether the organization or any of its officers, directors, or principals is, or has ever been enjoined, fined, convicted or subject to any other sanction or penalty as a result of soliciting contributions in any state or country, or whether such proceedings are pending
• Whether an officer, director or employee of the charity owns a 10% or greater interest in a professional fundraiser, or is an agent or contractor for a professional fundraiser, during a period of time when the professional fundraiser is under contract with the charity to solicit funds
• Financial information for the Attorney General to prepare reports for the legislature or the public if the information was not included in the organizations IRS Form 990
• Completed IRS Form 990 for the immediately preceding tax year, if the organization does not file a 990, it must file a version of the 990 with the Attorney General
• Financial statements reviewed or audited by a CPA depending on the charities amount of contributions received during a given year. If the amount of contributions reported on the 990 is more than $200,000 but less than $500,000 an organization must submit financial statements reviewed by an independent CPA. If the reported contributions are $500,000 or more, the organization must submit financial statements audited by an independent CPA
• For fundraisers, the bill requires the following:
• Requires fundraisers to register with the state, instead of applying for a license
• Revises the definition of a fundraiser to exclude, in most cases, a person whose activities are limited to providing training, advice, research, preparation of grant or contract applications, or design, writing, or production of solicitation materials.
• Implements a fee of $200 to register as a fundraiser in Michigan
• Mandates that specific information be submitted to the Attorney General on the registration form regarding the fundraisers business activities, contracts and clients
• Increases the amount of a bond that a fundraiser must post from $10,000 to $25,000
• Instructs fundraisers, within 90 days after a solicitation campaign is completed or on the anniversary of the completion of a solicitation campaign lasting more than one year, to provide a report to the Attorney General detailing gross revenue and itemized expenses incurred on behalf of the charitable organization

MNA will continue to work with the House of Representatives and the Attorney General to make revisions to this bill. MNA’s main concerns are the following:

• That the additional funds raised through the registration fee be used to increase enforcement and education of donors, and that these funds will not be used to replace existing appropriated dollars.
• SB 1115 currently subjects a charity to penalties if it fails to provide the attorney general, within 30 days, of any change in information previously submitted. However, there are small adjustments to an organization’s make-up, such as membership to its board of directors which may not need to be updated more than on an annual basis. Mandating additional reporting requirements for small details would place an unnecessary burden on nonprofit organizations. MNA recommends that additional reporting only be required for those changes that would impact an organization’s eligibility for registration.
• The bill currently provides penalties for individuals that fail to file registration papers required in this act. With a high turn-over rate for nonprofit staff and board members, it may be possible that failure to submit the proper registration forms may be due to oversight or ignorance. MNA recommends that a charity be provided notice that it must register by a certain deadline and only those who do not register after this warning should be prosecuted

SB 1115 has been referred to the House Committee on Commerce, which is chaired by Representative Clark Bisbee (R-Jackson).