In the US there has been a dramatic increase in the number of non-profits over the last few years. The Chronicle of Philanthropy has written a short article citing a forthcoming report which outlines how state regulators have not increased their capacity which effectively means that there is far less oversight of US charities. Apparently 53% of state regulators have not increased their staffing levels since 2008 and about 13 percent have decreased them. The IRS is also in a state of "paralysis" when it comes to regulating charities.
The Chronicle notes:
Flat state regulatory staffing levels makes anti-fraud efforts more difficult as the number of charities explodes, said Cindy Lott, executive director of the Columbia Law School National State Attorneys General Program and author of the report. Thanks in part to a new, shorter application form for nonprofit status, the number of groups to earn a 501(c)(3) tax-exempt designation nearly tripled in 2014. ...
According to Karl Racine, attorney general of Washington, D.C., state charity officials need to pick up the slack from the federal regulator, the Internal Revenue Service. The IRS, he said, remains in a state of "paralysis" because of budget cuts and fallout from a political scandal in 2013 over the agency’s scrutiny of Tea Party groups that applied for nonprofit status.
States’ Charity Rules Vary
Big differences in how states regulate nonprofits present a challenge to battling fraud, Ms. Lott said. For instance, charity watchdogs are housed in different offices, depending on the state.
Adding to the confusion, more than half the states split charity oversight between two offices. Typically, the state attorney general’s office oversees charitable assets and those who administer them, while another agency — often the Secretary of State or the Department of Consumer Affairs — enforces registration and filing requirements.
State charity offices are "equal but not alike," Ms. Lott said.
Among the report’s preliminary conclusions:
- Three-quarters of the states require charities or fundraising professionals to register. Forty-four percent of 50 jurisdictions that responded require audited financial statements from charitable organizations.
- More agencies (82 percent) regulated telephone solicitations than fundraising by direct mail (80 percent) or social-media (70 percent).
- Regulators vary in their efforts to reach the public with information about charities. One-third of the regulators provide an annual report, and 82 percent update the news media using news releases. Fifty-one percent had a charity hotline, 32 percent offered training in compliance for charities, and 7 percent offered webinars.
- Nearly three-quarters of the watchdog offices do not regulate B Corporations. Sixty-seven percent do not regulate low-profit limited liability companies (LC3’s), and 61 percent do not regulate religious organizations.
You can read the full article at: Nonprofits Proliferate but Not the Regulators, Says Report
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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.