NAAG

2018 NAAG/NASCO Conference – Update on the State Charity Regulatory Landscape

The 2018 conference of the National Association of Attorneys General/National Association of State Charity Officials (NAAG/NASCO), convened on October 1st with the theme of “Charities in a World of Change.”  The agenda included discussions on developments in nonprofit governance and accounting, self-regulatory standard setting, and risk management. However, the most significant change in state charity regulation may be the increased collaboration between charity regulatory offices. This trend is exemplified by the recently launched Operation Donate with Honor, a joint enforcement and consumer education initiative of the Federal Trade Commission (FTC), charity regulators in all 50 states, the District of Columbia, and several U.S. territories, which focuses on fraudulent solicitation activities purporting to benefit veterans and military service members. More than 100 enforcement actions were already undertaken by the various regulatory offices prior to the July 19th official launch of the initiative. One key enforcement action was a joint settlement between sixteen states against a veterans charity for engaging in an allegedly deceptive cause marketing campaign and failing to properly oversee donations made from the commercial co-venture with a nation-wide retailer. This multi-state enforcement approach began with an action brought in 2015 against four cancer charities by the FTC, all 50 states, and the District of Columbia which resulted in a multi-million dollar settlement and all four charities being shut down.

A panel of regulators at the conference shared current trends in regulatory enforcement, providing examples of recent enforcement efforts that reflected the conference’s theme of “change” and highlighted longstanding regulatory issues that persist among nonprofit organizations.

Here are five key takeaways from the 2018 conference:

  1. States are developing more data-driven enforcement strategies.

State charity officials are increasingly using data obtained through organizations’ annual registration filings to undertake risk assessments and select organizations for further examination or investigation. For example, a chronically delinquent filer may raise concerns about overall organizational compliance. Financial filings revealing unusual and sudden changes in an organization’s assets could also lead to a state inquiry.  States have traditionally used other sources of information to initiate investigations and enforcement actions such as whistleblower complaints, media reports, and referrals from other regulatory divisions. The states’ data-focused enforcement strategy mirrors the IRS’s recent data-driven compliance approach.

One regulator urged nonprofit organizations to go beyond the minimum legal standards, and instead evaluate their decisions through the lens of the “New York Times test” – considering how their decisions would be perceived if they ended up on the front page of the newspaper.  Nonprofits should consider periodically reviewing their organizational compliance against best practices in nonprofit governance, such as Independent Sector’s Principles for Good Governance and Effective Practice.

  1. Taxable nonprofits remain an area of confusion

The regulatory implications of being a “taxable” nonprofit (i.e., an entity that is incorporated under a state’s nonprofit corporation statute, but has intentionally declined to seek exemption from federal or state income tax) has raised some confusion with regard to charity regulators’ jurisdiction over their activities.  In general, a taxable nonprofit should not be subject to state charity regulatory oversight if it is not soliciting charitable donations, and its assets are not held exclusively for “charitable” purposes.  One concern voiced by a regulator is that such entities can (intentionally or not) create an incorrect public perception that they are “charitable organizations,” thereby causing people (and even charities) to make certain purchasing or business decisions based on that misperception.

  1. Beware the Dangers of Undue Board Deference to Organizational Founders

Emily Stern, Co-Chief of the Enforcement Division of the New York Attorney General’s Charities Bureau, noted that one of the recurring problems the Charities Bureau encounters is nonprofit boards that give an undue level of deference to their founders.  She advises that board members need to be reminded that they have a duty to be objective in their oversight responsibilities, and not merely defer to the recommendations of the founder. Many states, including New York, provide useful resources on their websites for board members to understand their fiduciary duties as directors of nonprofit organizations.

  1. States and the FTC are Actively Monitoring Charitable Crowdfunding Activities.

The panel noted that most crowdfunding campaigns conducted are personal crowdfunding campaigns (as distinguished from charitable crowdfunding).  Personal crowdfunding campaigns are generally not subject to charitable solicitation laws.

These campaigns can occasionally cross over, however, as seen in the case of Obie, a severely overweight dog who became the beneficiary of a crowdfunding campaign in 2014. As part of the campaign, the individual helping Obie lose weight stated that she would donate funds in excess of Obie’s medical needs towards animal care for other animals. After receiving a number of complaints, the Oregon Attorney General’s office initiated an investigation to review how the funds raised were used, and ensure that the remainder of the funds in excess of the medical costs would be used for the stated charitable purposes. Although Obie’s foster parent had hoped to distribute the additional funds raised directly to animal rescue efforts and other pet owners who needed to pay for surgery for their animals, the AG’s office required her to instead transfer the funds to established nonprofit organizations by a specified deadline.

Today, various state agencies are continuing to monitor charitable crowdfunding activities in part through a multi-state working group, in which the state regulators discuss recent trends and issues in the news relating to crowdfunding.  One point of discussion has been the possible development of informal guidelines similar to the Charleston Principles, which were adopted by NASCO in 2001 to guide states’ regulation of internet fundraising activities.  The FTC recently issued guidelines relating to online charitable giving portals, advising platforms to provide clear disclosure of platform policies in order to avoid creating donor confusion or violating advertising law principles.

  1. State Agencies Can Intervene in Nonprofit Governance.

The regulators explained that states can intervene in the governance matters of a charity incorporated in another state because of their regulatory jurisdiction to protect donors and charitable assets located in their state.  The protection of charitable assets is generally governed by states’ charitable trust laws, and donors are protected by state charitable solicitation laws.  Regulators frequently find that deceptive fundraising practices and misuse of charitable assets occur when boards fail to carry out their governance and oversight obligations. As such, states do not consider their regulatory jurisdiction to protect donors and charitable assets to be in conflict with the internal affairs doctrine, which provides that the law of the state of an entity’s incorporation will be looked to for general governance matters. Many states impose governance obligations on charities as part of settlement agreements following an enforcement action, requiring organizations to adopt conflict of interest and whistleblower policies, and provide board members with regular training on their fiduciary duties.

Share this Post

Related Posts

perlman & perlman philanthropic sector law firm blue logo

click to exit page

silk lanterns

who we work with

Our clients are diverse nonprofit organizations with a broad range of missions, as well as for-profit companies in evolving areas such as social enterprise, corporate philanthropy, joint ventures, technology-driven fundraising, and impact investing.

A.B. Data
AB InBev Foundation
Absolut Company
American Committee for the Weizmann Institute of Science
American Diabetes Association
American Friends of the Hebrew University
American Parkinson Disease Association
Association of Fundraising Professionals
Avalon Consulting
Baton Rouge Area Foundation
Black Lives Matter Global Network Foundation
Bleeding Blue for Good Fund
Bradley Cooper’s One Family Foundation
BrightFocus Foundation
Brooks Brothers
Chadwick Boseman Foundation for the Arts
Changing Our World
Charity Defense Council
Christian Appalachian Project
Doctors of the World/ Medecins du Monde
Doctors Without Borders/ Medecins San Frontieres
Drug Policy Alliance
Duke University
Emory University
Estee Lauder Companies, Inc.
Feed The Children
Food For The Poor
Gerald R. Ford Presidential Foundation
Grameen Foundation USA
Hope for New York
International Campaign for Tibet
International Crisis Group
International Justice Mission
J. Crew Group
Johns Hopkins University
Lautman Maska Neill & Company
Lawyers Committee for Civil Rights Under Law
LSU Foundation

Marts & Lundy
Meyer Partners, LLC
Milken Institute
NAACP Foundation
National Alliance on Mental Illness (NAMI)
National Marrow Donor Program
National Park Foundation
Natural Resources Defense Council
North Carolina State University
North Shore Animal League
Operation Smile
PBS Foundation
Pernod Ricard USA
PetSmart Charities
PopSockets
Population Action International
Project ORBIS International
Public Interest Communication
Rails to Trails
Redeemer Presbyterian Church
Rockefeller Philanthropy Advisors
Save the Children Federation
Sesame Workshop
Simon Wiesenthal
SOS Children’s Villages – USA
Subaru of America
The Little Market
Touro University
United States Equestrian Team Foundation
United Way Worldwide
University of Connecticut
University of Virginia
Vote.org
Whitney Museum of American Art
World ORT
World Wildlife Fund
YWCA USA

A.B. Data
Absolut Company
American Committee for the Weizmann Institute of Science
American Diabetes Association
American Friends of the Hebrew University
American Parkinson Disease Association
American Rivers
Association of Fundraising Professionals
Baton Rouge Area Foundation
BrightFocus Foundation
Burger King McLamore Foundation
Cancer Care
Carnegie East House and James Lenox House Association
Center for Car Donations
Changing Our World
Charity Defense Council
Christian Appalachian Project
Coca-Cola Scholars Foundation
Convoy of Hope
Cornell University
Doctors Without Borders/ Medecins San Frontieres
Drug Policy Alliance
Duke University
Emory University
Feed The Children
Gerald R. Ford Presidential Foundation
Grameen Foundation USA
Helen Keller Services
Hope for New York
Human Rights Watch
Humane Society of US
Indiegogo
International Campaign for Tibet
International Crisis Group
International Justice Mission
Japanese American National Museum
Johns Hopkins University
Lane Bryant Charities
Lautman Maska Neill & Company
Lawyers Committee for Civil Rights Under Law
LSU Foundation
Mattel
Meyer Partners, LLC
Milken Institute
National Breast Cancer Coalition
National Marrow Donor Program
Natural Resources Defense Council
North Carolina State University
North Shore Animal League
Obama Foundation
Operation Smile
PBS Foundation
Pernod Ricard USA
PetSmart Charities
Population Action International
Project ORBIS International
Public Interest Communication
Rails to Trails
Redeemer Presbyterian Church
Rock and Roll Hall of Fame and Museum
Rockefeller Philanthropy Advisors
Sesame Workshop
Simon Wiesenthal
SOS Children’s Villages – USA
Steinhardt Foundation
Subaru of America
United States Equestrian Team Foundation
University of Montana Foundation
University of Nevada, Las Vegas Foundation
Whitney Museum of American Art
World ORT
World Wildlife Fund
YMCA USA
YWCA of New York City
YWCA USA

perlman & perlman philanthropic sector law firm blue logo

click to exit page

news & events

Our attorneys’ recent contributions to the media and nonprofit sector publications.

news & events

Check out our attorneys’ recent contributions to the media and industry publications.

Secure Your Data – Seriously, AFP New York Chapter News
As Jon Dartley, a data privacy and security attorney at Perlman and Perlman says, “It is vital to have the appropriate legal terms in the contract to protect your interests.”  Find out what your liability limit is.  Have it in writing who bears the responsibility and cost of a data breach.  And, have the vendor agree on a specific timeframe within which they need to advise you of a data breach.

Warning: Don’t Cut Legal Corners When Mixing Social And Business Impact,  Forbes
Particularly striking is that (Karen) Wu believes this is the “first multi-state regulatory activity involving cause marketing in almost two decades.”

Is stealing, then giving back, OK?
Cliff Perlman lends his advice on theft within a nonprofit.

Buyer Beware: Negotiating Terms in Technology Agreements
Jon Dartley provides tips on negotiating contracts with technology vendors.

Four Ways Charitable Giving Could Change with a Tax Overhaul
Cliff Perlman remarks on the possible threat of a change to charitable deduction.

How To Deal With Residual Data, Nonprofit Times
Jon Dartley’s advice on addressing “data exhaust”.

Secure Your Data – Seriously, AFP New York Chapter News
As Jon Dartley, a data privacy and security attorney at Perlman and Perlman says, “It is vital to have the appropriate legal terms in the contract to protect your interests.”  Find out what your liability limit is.  Have it in writing who bears the responsibility and cost of a data breach.  And, have the vendor agree on a specific timeframe within which they need to advise you of a data breach.

Warning: Don’t Cut Legal Corners When Mixing Social And Business Impact,  Forbes
Particularly striking is that (Karen) Wu believes this is the “first multi-state regulatory activity involving cause marketing in almost two decades.”

Is stealing, then giving back, OK?
Cliff Perlman lends his advice on theft within a nonprofit.

Buyer Beware: Negotiating Terms in Technology Agreements
Jon Dartley provides tips on negotiating contracts with technology vendors.

Four Ways Charitable Giving Could Change with a Tax Overhaul
Cliff Perlman remarks on the possible threat of a change to charitable deduction.

How To Deal With Residual Data, Nonprofit Times
Jon Dartley’s advice on addressing “data exhaust”.

perlman & perlman philanthropic sector law firm blue and green logo

click to exit page

perlman & perlman philanthropic sector law firm blue and green logo

click to exit page

silk lanterns

who we work with

Our clients are diverse nonprofit organizations with a broad range of missions, as well as for-profit companies in evolving areas such as social enterprise, corporate philanthropy, joint ventures, technology-driven fundraising, and impact investing.

who we work with

Our clients are diverse nonprofit organizations with a broad range of missions, as well as for-profit companies in evolving areas such as social enterprise, corporate philanthropy, joint ventures, technology-driven fundraising, and impact investing.

A.B. Data
AB InBev Foundation
Absolut Company
American Committee for the Weizmann Institute of Science
American Diabetes Association
American Friends of the Hebrew University
American Parkinson Disease Association
Association of Fundraising Professionals
Avalon Consulting
Baton Rouge Area Foundation
Black Lives Matter Global Network Foundation
Bleeding Blue for Good Fund
Bradley Cooper’s One Family Foundation
BrightFocus Foundation
Brooks Brothers
Chadwick Boseman Foundation for the Arts
Changing Our World
Charity Defense Council
Christian Appalachian Project
Doctors of the World/ Medecins du Monde
Doctors Without Borders/ Medecins San Frontieres
Drug Policy Alliance
Duke University
Emory University
Estee Lauder Companies, Inc.
Feed The Children
Food For The Poor
Gerald R. Ford Presidential Foundation
Grameen Foundation USA
Hope for New York
International Campaign for Tibet
International Crisis Group
International Justice Mission
J. Crew Group
Johns Hopkins University
Lautman Maska Neill & Company
Lawyers Committee for Civil Rights Under Law
LSU Foundation

Marts & Lundy
Meyer Partners, LLC
Milken Institute
NAACP Foundation
National Alliance on Mental Illness (NAMI)
National Marrow Donor Program
National Park Foundation
Natural Resources Defense Council
North Carolina State University
North Shore Animal League
Operation Smile
PBS Foundation
Pernod Ricard USA
PetSmart Charities
PopSockets
Population Action International
Project ORBIS International
Public Interest Communication
Rails to Trails
Redeemer Presbyterian Church
Rockefeller Philanthropy Advisors
Save the Children Federation
Sesame Workshop
Simon Wiesenthal
SOS Children’s Villages – USA
Subaru of America
The Little Market
Touro University
United States Equestrian Team Foundation
United Way Worldwide
University of Connecticut
University of Virginia
Vote.org
Whitney Museum of American Art
World ORT
World Wildlife Fund
YWCA USA

A.B. Data
Absolut Company
American Committee for the Weizmann Institute of Science
American Diabetes Association
American Friends of the Hebrew University
American Parkinson Disease Association
American Rivers
Association of Fundraising Professionals
Baton Rouge Area Foundation
BrightFocus Foundation
Burger King McLamore Foundation
Cancer Care
Carnegie East House and James Lenox House Association
Center for Car Donations
Changing Our World
Charity Defense Council
Christian Appalachian Project
Coca-Cola Scholars Foundation
Convoy of Hope
Cornell University
Doctors Without Borders/ Medecins San Frontieres
Drug Policy Alliance
Duke University
Emory University
Feed The Children
Gerald R. Ford Presidential Foundation
Grameen Foundation USA
Helen Keller Services
Hope for New York
Human Rights Watch
Humane Society of US
Indiegogo
International Campaign for Tibet
International Crisis Group
International Justice Mission
Japanese American National Museum
Johns Hopkins University
Lane Bryant Charities
LSU Foundation
Mattel
Meyer Partners, LLC
Milken Institute
National Breast Cancer Coalition
National Marrow Donor Program
Natural Resources Defense Council
North Carolina State University
North Shore Animal League
Obama Foundation
Operation Smile
PBS Foundation
Pernod Ricard USA
PetSmart Charities
Population Action International
Project ORBIS International
Public Interest Communication
Rails to Trails
Redeemer Presbyterian Church
Rock and Roll Hall of Fame and Museum
Rockefeller Philanthropy Advisors
Sesame Workshop
Simon Wiesenthal
SOS Children’s Villages – USA
Steinhardt Foundation
Subaru of America
United States Equestrian Team Foundation
University of Montana Foundation
University of Nevada, Las Vegas Foundation
Whitney Museum of American Art
World ORT
World Wildlife Fund
YMCA USA
YWCA of New York City
YWCA USA
Lautman Maska Neill & Company
Lawyers Committee for Civil Rights Under Law

perlman & perlman philanthropic sector law firm blue and green logo

click to exit page

Culture & Values

Vision

We view our clients as partners that share our commitment to bring about change in the world. Our goal is to provide them the peace of mind of knowing that they are in compliance with their legal obligations and to further empower them to achieve positive social impact and financial success.

Our Mission

Our mission is to provide the highest quality, integrity-driven legal services to our clients, using a practical, consultative, client-focused approach to identify and respond to problems and challenges.

We strive to maintain a culture characterized by respect, opportunity, diligence, mutual empowerment, entrepreneurship, and fair reward for efforts made on behalf of clients and the firm.

Perlman & Perlman is a Certified B Corporation

Certified B Corporations use the power of business to solve social and environmental problems. B Corps are unlike traditional businesses because they

  • Meet comprehensive and transparent social and environmental performance standards
  • Meet higher legal accountability standards
  • Build business constituency for good business