California Legislature Approves Measure Opposed by Many of the State’s Charities

The California Legislature has passed a controversial bill that would change the way many nonprofit organizations manage their finances and how they seek contributions within the state. Gov. Arnold Schwarzenegger has not said whether he will sign the bill into law. Many charities are urging him to veto the legislation.

The bill, based on recommendations by California Attorney General Bill Lockyer, is designed to tighten financial management and governance of charities and prevent fund-raising abuses by nonprofit organizations.

The California Association of Nonprofits, an umbrella group that represents more than 1,700 organizations in the state, and others have opposed the bill, saying the measure would make unnecessarily extensive and complicated changes to current law and be especially burdensome for small charities (The Chronicle, August 19).

The bill has provisions on accountability that are similar to requirements in the federal Sarbanes-Oxley law, which governs publicly traded companies.

The California measure would require most charities with annual gross revenue of $2-million or more to file with the state each year financial statements prepared by independent certified public accountants.

Charities of that size also would be required to have audit committees appointed by their boards of directors.

Board members of nonprofit organizations would have to review and approve the compensation of top officials.

Fund-Raising Rules

The bill would also require new procedures by charities and their fund raisers.

For example, if a commercial fund raiser is to be paid a fixed fee by a charity for soliciting donations, the fee “and a good-faith estimate of what percentage the fee will constitute of the total contributions received” must be written into the fund-raising contract.

The measure would also require that commercial fund raisers hand over control of donated money to the charities within five working days of receiving it.

Under the bill, charities and their commercial fund raisers would be prohibited from “using any name, symbol, emblem, statement, or other material stating, suggesting, or implying to a reasonable person that the contribution is to, or for, the benefit of a particular charitable organization when that is not the fact.”

The measure would apply to nonprofit organizations that must register with the attorney general’s Registry of Charitable Trusts, but it would not affect groups that are exempt from registration, such as universities and hospitals.

To read the bill, S.B. 1262, and obtain more information about it, go to the Legislative Counsel of California’s Web site at http://www.leginfo.ca.gov.