Legal Potholes

on theFundraising Trail
 

To avoid trouble with the law, proceed with caution
 

By Julian Spirer

The president of the Oklahoma AFL-CIO, Ross J. Williams, probably thought he was exercising his constitutional right to solicit charitable contributions when he distributed a letter which both challenged an alleged opponent of labor and encouraged donations to a nonprofit legal defense fund. He almost certainly did not know that he was committing at least four violations of the Oklahoma Solicitation of Charitable Contributions Act.

According to a state official, Williams and the Oklahoma AFL-CIO broke the law by soliciting contributions without registering as professional fundraisers and by using the opponents name without that persons written con sent. Each violation exposed the president and his organization, as well as the nonprofit legal defense fund, to injunctive relief and a fine of $1,000. Williams also faced a possible two years imprisonment in the state penitentiary.

While imprisonment for illegal charitable solicitations is rare, its a risk that nonprofit staff should try to avoid by learning their state fundraising laws. All but three states impose some restrictions on fundraising practices and 35 states have full-blown charitable solicitation statutes. Moreover, counties and even some municipalities also restrict charitable solicitation activities.

The Ohio Charitable Solicitation Act is typical of the state laws. It mandates that every charitable organization, with limited exceptions, register with the attorney general before soliciting contributions, file an annual financial report, and pay a fee of up to $200 based upon the contributions received from state residents. The exceptions are religious organizations; educational institutions soliciting alumni, faculty, trustees, and students and their families; nonprofits soliciting their trustees or employees; and charities with gross revenues of no more than $25,000 annually, exclusive of government or 501 (c) (3) organization grants.

While imprisonment for illegal charitable solicitations is rare,
it's a risk that nonprofit staff should try to avoid.

Local fundraising restrictions are less uniform. Nonprofits in the Nashville metropolitan area can solicit funds only after filing a permit application, which includes a copy of the corporate resolution authorizing the solicitation and a substantiation of the need for the contributions being solicited. Charities seeking to raise money on sidewalks or at residences within the village of Gurnee, Ill., "in order to prevent crime and protect the health and safety of the citizens," must submit a permit application to the Chief of Police which includes a physical description of the solicitor, a description of his automobile, and information about any felony convictions.

Regulation of charitable solicitations isnt the only obstacle that nonprofits face in fundraising. Organizations need to ensure that the fundraising contractors they hire to administer their campaigns don't enrich themselves at the expense of the organization. The Better Business Bureaus standard for fundraising campaigns is that at least 65 cents from every charitable dollar should go to the charitable beneficiary. However, only 27 campaigns of the 392 registered in Ohio in 1997 met that minimum test. The Ohio Attorney General's Office reports that, out of the $104 million raised in Ohio in 1997, only $32 million went to charities while $72 million, or almost 70 percent of the total, was retained by professional solicitors. In other states, the pattern seems to be roughly the same.

To protect themselves from loss of potential income, nonprofits can take the following steps:

Julian H. Spirer (spirgold@aol.com) is a senior lawyer with the firm of
Spirer & Goldberg, P.C., in Washington, D.C.

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