Simpler System Will Let Charities Register in Multiple States at Once

Nonprofits will soon be able to register in multiple states using a central electronic system, state regulators say, a project years in the making that could save some groups thousands of dollars and dozens of hours of staff time.

The Single Portal Initiative is poised to halt a decades-old paper trail by which charities operating in multiple states register and file, often on hard copy, documents with each individual state. It also puts into the hands of regulators reams of searchable data that can be used to spot fraud and build legal cases against bad actors.

The single portal project is coming to fruition amid a broader landscape in which the volume of government data easily accessible to the public is exploding, most notably for charities the recent release by the Internal Revenue Service of Form 990s in machine-readable form.

“The fact that they are now both happening at the same time is a seismic shift in the amount and availability of data in our sector,” said Cindy Lott, director of nonprofit management programs at Columbia University’s School of Professional Studies. “And it is going to have a far-reaching impact on all sorts of analytics that can be run.”

State charity regulators spearheading the Single Portal Initiative aim to have a pilot version operating late this year or early next. Thirteen states will participate, and the goal is to scale up to include the 39 states — plus the District of Columbia — that currently require charities to register to raise money within their borders.

The Single Portal is not a panacea, said nonprofit leaders who are watching the project closely: It does not address underlying issues of compliance, or the fact that states laws have not kept pace with the proliferation of electronic fundraising tools.

Still, they describe it as a move in the right direction, even if it takes several iterations and years of work to make the system function well for all players. Eventually, professional fundraisers and consultants will also register and file requisite annual documents on the site.

“I think of it like a TurboTax-like model,” explained Chris Cash, charities program manager in the Colorado Secretary of State’s office and one of the state charity regulators helping to lead the Single Portal Initiative.

The Burden of Paper

Just a handful of states — they include Hawaii, Colorado, and New Mexico — have electronic registration systems for charities, professional fundraisers, and consultants, according to regulators. The reason for that is a lack of money to build them. That means that registration, renewal, and other documents, such as annual Forms 990 and fundraising and consulting contracts, arrive to states’ charity regulators in paper form to be tucked away in filing cabinets and storage spaces.

Karen Gano, assistant attorney general of Connecticut, said that some big charities working in numerous states spend as much as 200 staff hours, or $25,000 annually, to prepare and mail the filings or to hire law firms to do it for them.

Charities have complained for years that there is no efficient way to comply with states’ laws: Different states ask for different information and use different language, for starters.

In some cases, a state’s registration fee — possibly a few hundred dollars — might be more than the donations a charity expects to collect there, further reducing the incentive to comply.

But the lack of uniformity, the cost, and the continued use of paper records isn’t burdensome only for charities. It also means extra work for regulators.

They cite federal action taken last year to shut down four sham cancer charities as an example. From 2008 to 2012, the Breast Cancer Society, Cancer Fund of America, Cancer Support Services, and Children’s Cancer Fund of America bilked donors out of a total of $187 million, investigators found. The majority of the money went to professional fundraising firms, and a network of family members operating the fraudulent charities pocketed much of the rest, spending it on personal expenses like gym and dating-website memberships, cars, vacations, and college tuition.

The case took more than four years to build, with prosecutors in all 50 states and the District of Columbia manually compiling thousands of pages of financial data. It would have taken about eight months had a shared electronic registration system been in place, state regulators who worked the case estimate.

“We want to raise the integrity of the charitable sector,” Ms. Gano said. “The good actors are as anxious for us to do our job to weed out the bad actors as we are.”

Gaining Traction

Calls for a shared electronic charity registration system picked up steam in 2011 at a conference hosted by Columbia Law School and its Charities Regulation and Oversight Project, then headed by Ms. Lott. Regulators began studying how to move forward. They sought out legal counsel, and assembled an advisory committee with representatives from associations and organizations including GuideStar, Independent Sector, and the National Council of Nonprofits.

Eventually they created a nonprofit corporation called the Multistate Registration and Filing Portal. The National Association of Attorneys General, or NAAG, agreed to serve as official administrative and fiscal headquarters for the new entity. The NAAG Mission Foundation provided a $190,000 grant, and the Charles Stewart Mott and Newman’s Own foundations provided $30,000 each.

Acknowledging that they “are not electronics or technology experts, nor open-data experts,” said Ms. Gano, she and her colleagues at the new organization contracted the GovLab, a center at New York University’s engineering school that works on open-data projects, to manage the effort. The regulators and the GovLab team are currently meeting with vendors and reviewing proposals for the new system and expect to have a contract in place by fall.

Curbing Redundancy

For the past year, the charity regulators behind the project have convened as many as four times a month to map out the data requested under different states’ laws. Among other things, they discovered that states were requesting the names of organizations seven ways, such as: What is your legal name? What is the name of the organization that you operate under? What is your legal name and what other names do you solicit donations under? What are all the names this organization uses?

The goal of the mapping work is to eliminate duplication and winnow down the number of questions charities have to answer, regulators said. Once it is live, charities will log into the portal, tick off all the states where they want to register, and be presented only with the questions that those states require. Charities will not have to fill out the same information for multiple states, as is the case now.

Among other things, the new charity electronic-registration system will prepopulate data fields by pulling information from electronically filed Form 990s, saving charities time. Their data will be stored, so year to year, they will only need to update the data fields that have changed. If a group’s address or executive director has not changed, for example, it will not have to touch those fields.

Financial transactions — states’ fees for charity registration — will be processed directly within the new site. The money will be disbursed to the states.

There will also be transaction costs for using the Single Portal itself — the amount is still to be determined — revenue that regulators say will help it become a self-sustaining operation.

Jennifer Chandler, vice president of the National Council of Nonprofits, said that for some nonprofits the business case for registering will likely remain challenging. If a charity operating in one state has a $25-a-year donor who retires to another state where the group is not registered, for example, there is little incentive for it to pay to register. That group may very well keep sending requests to that donor in violation of state statutes, Ms. Chandler said.

Even with a single system, the patchwork of state laws will continue to make life hard even for charities that want to comply, she said.

“The weakness is that the underlying state statutes that trigger registration are not consistent, and they are outdated,” Ms. Chandler said. “Hardly any of them reflect the technology available to solicit donations and what people are doing.”

Regulators working on the portal say that the first version to be released will not be perfect. They describe a “build-as-we-go” approach in which they will be taking feedback from charities to improve the single portal system in multiple stages.

Still, they said that with the project well underway, charities can look forward to a day when they no longer have to navigate a labyrinth of state registration requirements. Members of the public and journalists will be able to easily research groups and professional fundraising firms. And regulators will have access to their own back page where they can run algorithms, generate reports, and identify outlying groups or fundraisers.

Said Ms. Gano: “We can begin to do real analysis about what data gives us, information that is meaningful in identifying problems that can be fixed with policy or identifying fraud.”