Charitable Nonprofit Solicitation and Financial Statement Requirements


Recording and Reporting Charitable Solicitations 101

State charitable solicitation laws serve to protect donors from unregistered, deceptive, and outright fraudulent activities. To keep tabs on nonprofits operating within their borders, most states currently require charities to register and report annually to the Attorney General, Department of Consumer Protection or another charitable leader. Although the registration process varies in each state, nonprofits can generally expect to submit the following on an annual basis:

State-specific app detailing contact information, charitable programs, and descriptions of solicitation activity

Copies of organization records, such as incorporation documents and IRS exemption determination

An up-to-date list of officers, directors and key officers

Form 990 and all attachments, including unredacted Attachment B

Financial statements, which may need to be audited, reviewed or compiled

In some states, proof of a foreign degree and appointment of a rregistered agent for procedural service.

Application fees, usually based on annual dues or gross earnings

Point: In most states, the act of solicitation generally triggers registration requirements, not the receipt of funds.

“Solicitation” is broadly defined. These can be traditional methods, such as direct mail, phone calls, and any variety of in-person, corporate, or foundation activities. In the age of technology, many states now consider electronic media to be equally solicited, including email, “Give Now” buttons on websites, crowdfunding, and social media. Organizations operating these low-cost, high-reach platforms – especially in light of COVID-19 – should be aware of triggering registration requirements outside of their home state and possibly at scale. national.

Most states do not penalize organizations that register in good faith. Therefore, nonprofits must make proactive efforts to comply with state registration requirements.

Financial Statement Requirements for Charitable Solicitation Requirements

The majority of states require nonprofit organizations to submit financial statements of some kind with their annual charitable registration documents in addition to Form 990. No less than 25 states specifically require financial statements that have been audited or reviewed by an independent CPA. Several States require that the statements be prepared according to GAAP, that is to say according to accrual accounting.

These requirements are triggered once the organization’s annual income exceeds the statutory threshold. State thresholds for audited or revised statements are generally based on one of the following:

Total Contributions, Donations, and Grants (Form 990, Part VIII, Line 1h)

Total Gross Income (Form 990, Part VIII, Line 12)

Sometimes income from program services (Form 990, Part VIII, line 2g) is considered in addition to annual contributions

State thresholds are generally not based on:

The number of transactions in a given year (e.g. a small number of large contributors)

Income from a particular state

Point: Nonprofit organizations and practitioners need to understand together the impact that the prospect of registration has on the type of financial statements needed.

Even taken at a glance, state requirements vary widely. For example, an organization in California is generally not required to have audited financial statements prepared until it reaches $2 million in gross revenue (at least for state registration purposes) . The same organization planning to register in Illinois must submit audited financial statements when gross contributions exceed $300,000 (or $25,000 if it retains a professional attorney).

Even neighboring states do not share requirements or offer reciprocity. An organization that registers in Oklahoma currently does not submit returns of any kind, but may require audited financial statements when registering in Arkansas, Kansas, or New Mexico.

The requirements don’t just vary from state to state. They also vary from year to year.

Some states, such as Minnesota and New York, do not require financial statements with initial registration documents, but may do so for each subsequent annual return.

Organizations experiencing annual revenue growth may be able to submit internally prepared income statements and balance sheets one year, but require a CPA engagement for revised or audited statements the following year.

New organizations with significant seed funding may be immediately required to produce audited or revised financial statements upon registering for the solicitation. Remember that the factor is usually the total revenue of the organization, not the number of transactions.

Point: CPAs should lead the conversation on what kind of financial statements their nonprofit clients need. Boards and management should budget the cost of audit and assurance work on an annual basis.

Departures from financial statement requirements

Audited and reviewed financial statements must be included for successful registration and annual renewal. Generally, failure to submit all required documents means the organization is non-compliant and therefore cannot solicit.

Organizations that do not have the required disclosures frequently ask if a waiver from state requirements is possible. Since the requirements are set by law, requests for waivers of these requirements are highly unusual, if not outright inadmissible.

State criteria for granting a waiver, if any, are highly conditional. For instance:

Illinois allows a “once in a lifetime” waiver, which means the organization can request a waiver once, but can never do so again during its lifetime.

Pennsylvania requires a presentation of “particular facts and circumstances», which does not include in particular the lack of knowledge of the requirements or the cost of a CPA commitment.

Wisconsin offers waiver only to organizations that think big year-over-year growth.

Even if a particular publication or state examiner indicates that a waiver is possible, all requests are individually reviewed and may be denied.

Some states do not provide waivers from their legal requirements. New Jerseyfor example, considers candidates who file without the required statements to be perpetually delinquent until they do so.

Point: In general, organizations should be aware of and, with their CPA, plan to comply with the legal requirements for financial statements before submit registration documents to avoid unexpected delays or costs.

Compliance Policies

Management and boards of nonprofit organizations should be aware of the general registration requirement. Taking steps to comply requires an internal review of the organization’s operating and fundraising activities. Depending on the organization’s mission and its solicitation methods, this may occur in multiple states.

Because state thresholds vary, organizations should understand what type of financial statements are required in each state where they plan to register. The CPA plays a key role in helping his client understand the minimum thresholds, advising him and preparing the required documents.

Each year, nonprofit organizations must review their activities and revenues, which may result in additional registration and financial reporting requirements. When an independent CPA engagement is required, the board is responsible for selection of an experienced companyapprove the line item and ensure that the appropriate statements are prepared and approved.

Ultimately, compliance is a collaborative effort. CPAs, legal counsel, and state record preparers work in conjunction with nonprofit management to ensure that the organization’s program and fundraising activities are solidly executed and fully visible to the public. . The key to success is a proactive mindset. It’s time to start the conversation, seek out additional resources, make a plan, and take action!

=======

James Gilmer is a compliance specialist with Port Compliance, a supplier of compliance solutions for businesses and nonprofits of all types and sizes. Since 2012, the company has helped more than 25,000 organizations apply for, obtain and maintain licenses across all industries. Harbor Compliance offers generous affiliate ad reference partnership programs to qualified CPAs, accountants and law firms.

Previous Analysts have prepared a financial report on the interim report of Forterra plc (LON: FORT)
Next ODM publishes financial statement and denounces funding delay