March 4, 2004 | Read Time: 3 minutes
California Attorney General Bill Lockyer has asked the state’s Legislature to pass several new laws to strengthen the state’s oversight of nonprofit groups and commercial fund raisers.
The proposals would require nonprofit organizations with annual revenue of $500,000 or more to prepare financial statements every year, audited by an independent certified public accountant, that would have to be made available to the public. In addition, an organization’s board would have to set up an audit committee, which could not include any employee or member of the board’s finance committee. The attorney general wants to keep top officials off audit committees to ensure the committees’ independence, he said in a press release announcing the proposal.
Commercial fund raisers would be required, within five days of receiving any charitable contributions, to deposit all the money in a bank account controlled by the charity or give it to the charity directly. The attorney general included that provision, his office said, after an investigation of the Hollywood fund raiser Aaron Tonken led to a lawsuit alleging that he was diverting donations to bank accounts under his control.
Any charity that hired a commercial fund raiser would have to sign a written contract specifying the purpose of the solicitation campaign and the fund raiser’s fee, and file a copy of the contract with the attorney general’s office at least 10 days before the beginning of the campaign.
‘BlackEye’ for Charities
In a statement explaining the proposal, Mr. Lockyer said changes were needed in the wake of “investigations across the country that show that bad actors are giving nonprofits a black eye.”
Florence L. Green, executive director of the California Association of Nonprofits, said the association opposes some elements of the attorney general’s plan. The requirement for audited financial statements, she said, could put an unnecessary financial burden on smaller groups without achieving Mr. Lockyer’s goal of preventing fraud and abuse. “If you look at all the groups that get into trouble, they’ve all had audits,” Ms. Green said. “It costs about $7,000 to $10,000 to do an audit. That’s a large amount of money for nonprofits to pay when it doesn’t produce the results you’re looking for.”
She also said the requirement for nonprofit groups to have separate finance and audit committees could be a problem for small organizations that do not have enough board members with financial expertise to create two independent committees.
Rather than adding regulatory requirements, she said, the state should focus on enforcing laws against fraud and other misbehavior that already are on the books. “What the attorney general and other regulators don’t want to do is spend any money on oversight,” Ms. Green said.
Tom Dresslar, a spokesman for the attorney general, disagreed with Ms. Green’s criticisms. “We spend the resources we now have as efficiently as possible to enforce the laws on charitable organizations,” Mr. Dresslar said. “With California’s budget situation, we are not going to get additional resources.”
He added that the attorney general’s proposal would cover only 9,617 of the 87,995 charitable organizations registered with the state. “The small nonprofits she’s talking about would not be affected.”
