New Florida Law Tightens Rules for Charitable Solicitation

Law is Tougher on Bad Actors, Becomes Effective July 1, 2014

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The Commissioner of Florida’s Department of Agriculture and Consumer Services, Adam Putnam, took special note late last year when the Tampa Bay Times  published the results of its research project, “America’s Worst Charities.”  Among its responsibilities, Putnam’s department oversees the administration of Florida’s charitable solicitation laws.  Putnam was particularly incensed that the report, a collaborative project of the Times and the Center for Investigative Reporting, labeled a Florida charity “the worst of the worst.”

The charity making the notorious top position on the list was Kids Wish Network, about which the Times stated the following:

Every year, Kids Wish Network raises millions of dollars in donations in the name of dying children and their families. Every year, it squanders almost every penny.

The money gets diverted to enrich the charity’s operators and the for-profit companies Kids Wish hires to drum up donations. Sick children wind up with less than 3 cents of every dollar raised. That has been the formula for 16 years, ever since Kids Wish mimicked the respected Make-A-Wish Foundation and launched its relentless drive for money. In the past decade alone, Kids Wish has channeled nearly $110 million donated for sick children to its corporate fundraisers. That makes it the worst charity in the nation, according to a Times/CIR review of charities that have steered the most money to professional solicitation companies over time.

The report and its related publicity prompted Commissioner Putnam and Florida lawmakers to pursue reform in Florida’s charitable solicitation law.  Senator Jeff Brandes (R-St. Petersburg) and Representative Jim Boyd (R-Bradenton) filed bills in the Florida Senate and House designed to tighten the rules for charities and professional fundraising solicitors in Florida, and to add tougher penalties for those who violate the law.

The result of their work is House Bill 629, approved by both the House and Senate, and signed by Governor Rick Scott on June 13.

Dubbed by many as Florida’s “Charity Reform Law,” passage of the act made a number of significant changes to Florida’s charitable solicitation law.  Following is a summary of the more significant changes made by House Bill 629 (hereinafter referred to as “the Act”):

New Provisions for Exemptions

Existing law provides a broad exemption from Florida’s charitable solicitation registration requirements for “bona fide religious institutions, educational institutions, and state agencies or other government entities…”  The Act added an exemption for certain “blood establishments.”

Religious Institutions

The exemption for religious institutions in Florida has historically been the subject of some difficulty and controversy.   The statutory definition of a religious institution states that the term “means a church, ecclesiastical or denominational organization, or established physical place for worship at which nonprofit religious services and activities are regularly conducted and carried on and includes those bona fide religious groups that do not maintain specific places of worship.”  In past years, some non-church religious organizations reported that Department officials denied them exemptions because they were not churches.  As our firm engaged in the legislative process related to the Act, we met with top officials of the Department and key members of the Legislature to address the religious exemption issue, among other topics.  We were advised by representatives of the Department that the current staff and leadership take an appropriate view of the religious institution exemption in light of the statutory definition, and that if any bona fide religious organization is under the impression that it is required to register with the Department, that organization should contact the Department for clarification. Additionally, Senator Brandes and Representative Boyd addressed the issue by adding legislative intent language to the Act, which states:

The Legislature respects the diversity of activities conducted by religious groups and therefore, through this act, intends that the definition of a "religious institution" apply to bona fide religious groups.

We at BMWL are very appreciative of the engagement by Senator Brandes, Representative Boyd, and representatives of the Department of Agriculture and Consumer Services to address our concerns about the application of the religious institutions exemption.

Educational Institutions

The Act did not change the exemption provisions for educational institutions.  However, it is worthy to note here as a reminder that the existing exemption covers more than schools.  The educational institution exemption also applies to certain school fundraising organizations, newspapers of tax-exempt colleges, certain educational television networks, and certain nonprofit television or radio stations.

New Provisions Related to Financial Reports

Organizations that were required to register under Florida’s existing charitable solicitation law have been required to submit certain financial information.  Following are changes made to the financial reporting requirements for organizations required to register under the Act:

1. As part of the initial registration or annual renewal, a parent organization of a group that includes chapters, branches, or affiliates may (as has been the case) file a consolidated financial statement that incorporates the financial activities of the chapters, branches, and affiliates.  The Act requires parent organizations to submit federal Form 990 for each chapter, branch, or affiliate with the consolidated financial statement (for each entity that is required to file one under federal law).

2. Financial statements submitted with an organization’s registration must meet new requirements.  The organization must submit either its Form 990 and all related schedules (properly redacted for public inspection as allowed by federal law) or financial statements.  If Form 990 is submitted by an organization with $500,000 or more in annual contributions, the Act now requires that it be “prepared by a certified public accountant or another professional who prepares such forms or schedules in the ordinary course of his or her business.”  Department officials have informally advised BMWL that the Department’s position with respect to the new preparer requirement is that the Form 990 must be prepared by a person who “has some expertise” in preparing such forms, and that the new statute allows for such forms to be internally prepared, subject to the “expertise” requirement.  If the organization submits financial statements instead of Form 990, the Act now requires that such statements be audited by an independent certified public accountant if the organization’s annual contributions are $1 million or more, or reviewed (or audited) by an independent certified public accountant if the organization’s annual contributions are at least $500,000 but less than $1 million.  The Act states that for organizations with annual contributions of less than $500,000, an audit, review, or compilation is optional.

3. The Act includes a new provision stating that the Department may “require that an audit or review be conducted for any financial statement submitted by a charitable organization or sponsor if the department finds any discrepancies, which may include, but are not limited to, irregular or inconsistent information, in the charitable organization's …financial statement.”

4. If, for the immediately preceding fiscal year, a charitable organization…had more than $1 million in total revenue and spent less than 25 percent of its annual functional expenses on program service costs, the Act imposes extensive additional reporting requirements related to the organization’s leaders, compensation, travel expenses, transactions with related parties, and more.

5. New requirement for disaster relief reporting – The Act contains a new requirement for certain charities that solicit contributions for disaster relief.  A charitable organization that solicits contributions in Florida for a charitable purpose related to a specific disaster or crisis (as those terms are defined in the Act) and receives at least $50,000 in contributions in response to such solicitation must file quarterly disaster relief financial statements with the Department on a form prescribed by the Department. The quarterly statements must detail the contributions secured as a result of the solicitation and the manner in which such contributions were expended. Such reports must be filed until all contributions raised in response to the solicitation are expended.   Charities that have been registered with the Department for at least four consecutive years prior to soliciting contributions for a specific disaster or crisis are exempt from this new requirement.   (This provision in the Act is presumably designed to permit more scrutiny of charities that start up in response to disasters or crisis situations.  There have been many reports of abuse by organizations started up in the wake of disasters or crises.)

The Act requires the Department to post notice on its website of each disaster or crisis subject to these new reporting requirements.

Other New Provisions

Florida Sales Tax Exemption

The Act contains a new provision that causes a charitable organization otherwise eligible for a Florida sales tax exemption to lose its eligibility (and have any existing exemption revoked) in the event the Department issues a “final disqualification order” as a result of violations by the organization of the charitable solicitation law as modified by the Act.

Standard Solicitation Disclosure Requirements

Existing law required registered organizations who solicit in Florida to include a standard disclosure, along with the organization’s registration number, in “every solicitation, confirmation, receipt, or reminder of a contribution.”   The standard disclosure is as follows:

A COPY OF THE OFFICIAL REGISTRATION AND FINANCIAL INFORMATION MAY BE OBTAINED FROM THE DIVISION OF CONSUMER SERVICES BY CALLING TOLL-FREE WITHIN THE STATE. REGISTRATION DOES NOT IMPLY ENDORSEMENT, APPROVAL, OR RECOMMENDATION BY THE STATE.

In addition to the existing requirement that the standard disclosure include a toll-free number for the Department, the Act requires the disclosure to include a website which can be used to obtain the organization’s registration information.

Existing law has stated that if a solicitation consists of more than one piece, the statement “must be displayed prominently in the solicitation materials.”

The Act contains a new provision stating that “if the solicitation occurs on a website, the statement must be conspicuously displayed on any webpage that identifies a mailing address where contributions are to be sent, identifies a telephone number to call to process contributions, or provides for online processing of contributions.”

Violation of Law by an Organization or Its Leaders

The Act contains a ban on charitable solicitation in Florida by any of an organization’s officers, directors, trustees who have committed a felony in any state.  The Act also allows the Department to ban an organization from soliciting in Florida where the organization or any of its officers, directors, or trustees have had the right to solicit contributions in any state revoked.

Conflict of Interest Policies and Transactions

The Act contains a new provision requiring that organizations registered to solicit contributions in Florida adopt a policy regarding “conflict of interest transactions.”  The Act also mandates that the policy adopted by the organization must require annual certification of compliance with the policy by all directors, officers, and trustees of the organization. A copy of the annual certification must be submitted to the Department as part of the organization’s annual registration.

The Act defines a “conflict of interest transaction” as a transaction between a charitable organization and another party in which a director, officer, or trustee of the charitable organization has a direct or indirect financial interest. The term includes, but is not limited to, the sale, lease, or exchange of property to or from the charitable organization; the lending of moneys to or borrowing of moneys from the charitable organization or sponsor; and the payment of compensation for services provided to or from the charitable organization or sponsor.

As part of the many resources we make available to our clients, BMWL has a sample conflicts of interest policy available to any of our clients upon request.

Professional Solicitors

The Act contains extensive new and breathtakingly comprehensive registration, licensing, and disclosure requirements for professional solicitors – people and organizations that solicit contributions on behalf of charitable organizations.

Collection Receptacles

The Act contains new provisions related to “collection receptacles” used to collect donated clothing, household items, or other goods for resale:

• • A collection receptacle must display a permanent sign or label on each side which contains the following information printed in letters that are at least three inches in height and no less than one-half inch in width, in a color that contrasts with the color of the collection receptacle:
    • For a collection receptacle used by a party required to register with the Department, the name, business address, telephone number, and registration number of the charitable organization for which the solicitation is made.
    • For a collection receptacle placed or maintained in public view by a party not required to register or not claiming an exemption, the name, telephone number, and physical address of the business conducting the solicitation and the statement: “This is not a charity. Donations made here support a for-profit business and are not tax deductible.”

 

• Upon request, a charitable organization using a collection receptacle must provide the donor with documentation of its tax-exempt status and the registration issued by the Department.

Elimination of “Knowing” Criterion for Violations and Increased Penalties

Existing law stated that it is unlawful for any person to knowingly submit false, misleading, or inaccurate information in a document filed with the Department or provided to the public.  The Act removed the word “knowingly” from this section of the law, lowering the bar for what constitutes unlawful conduct in charitable solicitations.  In addition, the penalties and other sanctions under the law were generally increased and toughened by the Act.  As a practical matter, this change in the law makes it more important than ever for organizations that solicit funds in Florida and that are required to register with the Department to carefully prepare and review the documents they submit to the Department or the public in connection with charitable solicitations.  For example, failure to provide an accurate Form 990 in connection with an organization’s registration may carry significant penalties under the Act.

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