For many nonprofit leaders, the word “compliance” conjures a set of hoops to jump through, a series of hurdles created to trip up unwary charities, a bureaucratic minefield that must be navigated on the way to the more pressing work of mission and outreach.
But like nonprofit organizations, charitable registration and reporting requirements exist to serve the public good. Looking at compliance through that lens provides a very different view.
Charitable regulations are rooted in 15th century English common laws granting the attorney general power to oversee projects that benefited the community. This power was affirmed in an 1844 U.S. Supreme Court decision, and has been encoded by statutes in most states. These laws are important because, as the authors of a recent survey of charitable regulation by the Urban Institute and the Columbia School of Law noted,
“Neither donors nor beneficiaries have automatic legal standing to challenge activities of a trustee.”
Charitable regulation empowers the public to ensure that charities uphold their fiduciary duties to donors and use donations as intended, on projects that benefit the community.
In addition to promoting the public good, complying with charitable registration and reporting requirements provide many tangible benefits to nonprofits.
1. Affirms Your Good Faith
Charitable registration and reporting provide states with critical information about an organization’s activities, management, and finances. All of this information is necessary to determine whether an organization is operating in good faith. By fully complying with all of the requirements wherever you operate, your organization publicly demonstrates your commitment to financial transparency, responsible operations, and community service.
2. Eliminates Bad Actors
Another benefit of charitable registration and reporting requirements is that they penalize and sometimes eliminate organizations that are not using donations appropriately. This helps to maintain the public’s trust in the nonprofit sector and steers funding toward responsible organizations.
3. Encourages Donations to Your Organization
Being able to demonstrate your good standing under state laws encourages donor trust and enhances your ability to attract donations. Consumer protection agencies such as the Better Business Bureau and the Federal Trade Commission encourage consumers to investigate charities before donating, and the Internet has made such research easier than ever.
4. Facilitates Rapid Growth
Managing compliance strategically allows your organization to position itself for growth and take advantage of a wider range of fundraising and outreach opportunities. For example, activities such as online fundraising require registration in the majority of states. Many charitable organizations choose to register nationally so they can execute campaigns fast without fear of disruptions or inadvertent legal missteps.
5. Promotes Best Practices
Preparing the documents required for state registration and annual reporting can help smaller nonprofits audit their own practices and address deficiencies early. Many nonprofits don’t have legal and financial teams to provide internal oversight. For those nonprofits, complying with state requirements can promote sound fiscal management and governance.
6. Saves Time and Money
The old saying that an ounce of prevention is worth a pound of cure is very true of charitable registration and reporting. The cost of fixing an error or omission is always much higher than the cost of proactive registration due to the time required to negotiate with state agencies as well as potential increased fees and penalties.
It’s worth noting that the same tools that make it easy for consumers to research nonprofits are being actively used by regulators. The Urban Institute survey found that 92 percent of regulators used the Internet to research nonprofits, and 88 percent specifically cited GuideStar as a valued resource.
7. Provides Peace of Mind
Many nonprofit leaders and staff are multitasking and stretched pretty thin. Knowing that your organization is fully compliant lets you reach out to the community with confidence and focus on your mission.
Compliance and the Nonprofit Community
Strategic, proactive compliance is a state of mind. It turns that minefield with its hidden dangers into a wide-open field of opportunity. Regulators are no longer antagonists waiting to strike, but part of the community that fosters your mission.
Many in the nonprofit sector don’t realize that regulators are stretched just as thin as they are. As the Urban Institute noted,
“Charities are a growing part of the U.S. economy where a million charities, thousands of fundraisers, and hundreds of thousands of other types of nonprofits and trusts are overseen by 355 [full-time equivalent] charities staff,” yet
“state-level activities are significant and more robust than people in the charitable sector assume.”
When thinking about compliance, it may help to remember that regulators are working diligently on the other side, often with limited staff hours and resources at their disposal, and all with the same goal: to serve the public good.
The Right Partners
Having a strategic partner to help you manage charitable registration and reporting can help you reap the benefits of proactive compliance. Whether you want someone to manage all of your compliance needs from beginning to end or just some support and guidance for some prerequisites, the specialists at Harbor Compliance are ready to help. Simply contact us or give us a call at 1-888-995-5895.
In addition to proactive compliance, having the tools in place to manage fundraising, donor engagement, and volunteer outreach activities is increasingly important as your organization grows. Tools like GiveGab’s giving and engagement platform make it easy to create stunning online fundraising campaigns, manage constituent databases, track your progress and goals, and more.
Betsy Gonzalez is a copywriter and editor for Harbor Compliance, a leading provider of compliance solutions for nonprofits and businesses at all phases of development. Since 2012, we have helped more than 10,000 organizations apply for, secure, and maintain licensing and registration across all industries including other considerations such as appointing a registered agent, obtaining a certificate of authority, annual reporting, and renewals.