Draft California law may allow AG to do more than browse annual filings

There is a perception that regulators, such as the IRS, California Franchise Tax Board, and California Attorney General scour every filing they receive from charities to make sure every charity is obeying every law and has every box checked correctly. Based on that detailed analysis, the agencies decide who to audit for misconduct and they start enforcement action on everyone that steps so much as an inch out of line or answers even one question “wrong”.

Umm. Not quite.

The perception amongst my colleagues who work with charities is that the various regulators barely have time to file the reports and probably don’t have time to study anything. I have long guessed that the volume of reports is so overwhelming that there isn’t time to carefully consider anything unless someone from the public complains.

In her report, Bill targeting ‘scam charities’ in California law moves forward, Kendall Taggart from the Center for Investigative Reporting confirms my colleague’s read of the situation is more accurate that the common perception.

Charities and fundraisers operating in California are required to file an annual report with the Registry of Charitable Trusts in the Attorney General’s office. The initial filing is a CT-1. The recurring annual report is the RRF-1.

Here is some info from the article:

  • 230,000 – number of registered charities and fundraisers
  • 52,000 – estimated number of delinquent filers
  • 130,000 – estimated number of charities operating in the state who aren’t registered
  • 12 – approximate number of staff who process all those filings

Spread those 230,000 reports over 50 work weeks (leaving out my assumption of approximately 10 official holidays) means there are 920 reports arriving each day.

Ponder the work needed for each of those 920 daily filings:

  • Each report has a check attached, which needs to be verified for amount, then deposited.
  • Browse each report to make sure is seems to be complete (signed, appears to have a check in all the yes/no boxes, has a 990 or 990-EZ attached if required, and the 990 seems to be complete).
  • Verify a plausible explanation is attached for “yes” answers (material diversion of assets, contracts with fundraisers, related party loans).
  • Scan each report (they arrive on paper).
  • Extract Schedule B for the copy that will be publicly available.
  • Post the information on the publicly available database.
  • Follow up with all reports that are incomplete, incorrect, unsigned, have no check, or have incorrect payment amount.
  • File the corrected info when it arrives.

Spreading the work amongst 12 staff means each person needs to go through those steps for 77 filings per day.

That doesn’t leave a lot of time to deal with the estimated 52K delinquent filers or 130K charities that haven’t bothered to file.

That also doesn’t leave much time for identifying the charities who need a serious heart-to-heart chat with the AG. If you don’t have any idea what I’m talking about, the starting point for that list can be found at the America’s Worst Charities series of articles from the Tampa Bay Times, Center for Investigative Reporting, and CNN.

A proposed bill in the California legislature would allow the AG to use an increased portion of the fees from the filings to hire additional enforcement staff. The bill moved out of committee with a unanimous vote (Unanimously? Does anything anywhere anytime happen unanimously in the California legislature?).

The bill is expected to move to the floor the week of Memorial Day.

Sounds like that would be a great idea. Seems to me the staff working with all those reports from charities need to do more than just file the reports.

What do you think?

Update 6/2 – Orange County Register – Proposed crackdown on bad charities finds no foes – The bill cleared the state Assembly on a 76-0 vote. Unanimous? What is this state coming to?

Next stop? The Senate.

The bill would allow the Department of Justice to tap $1.4M of the $7M pool (I think that is annual income) from registration fees. That would fund up to 13 staff positions, according to the article. The scare argument to favor the bill is the idea of ‘scam charities’ that spend pennies on their mission out of each dollar raised. While I think the idea of a flood of scam charities is overstatement, there is still a need for increased enforcement. I for no other reason than to provide a level playing field for all the charities I know or have ever worked with, each of whom puts serious effort into obeying all laws and regulations.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: