Sector Insights, What Charity Regulators are Watching, and How Nonprofits Can Stay Prepared.
Attending the annual NAAG/NASCO Charities Conference is the perfect opportunity to understand what truly matters to charity regulators. This yearly event brings together state charity officials and nonprofit leaders to discuss oversight, compliance, and the charitable sector’s overall health. This year’s meeting in Columbus, Ohio, clearly showed that enforcement expectations remain a priority even as nonprofits face unprecedented operational and political challenges.
The Regulator’s Lens: Practical Duties Over Abstract Ideals
State officials emphasized four key boardroom priorities: (1) act with care, (2) remain committed to the mission, (3) follow governing documents and the law, and (4) manage the organization’s finances responsibly. Regulators look for disciplined decision-making, precise adherence to bylaws and filings, and budgets that align with program objectives.
This practical approach to compliance also guides how states identify compliance issues. Regulators are increasingly analyzing public IRS data (Form 990s, the Master Business List, and similar sources) to find nonprofits that appear to be operating or soliciting without being properly registered to solicit. If you’re fundraising nationwide, you can assume your filings are being reviewed across jurisdictions and that outreach may occur before any complaints are filed.
A Sector Under Strain
Conference sessions ranged from fundraising practices, the role of religious organizations, and complex organizational structures. Throughout, the message was clear: charities face a loss of funding, legal and political hurdles to DEI initiatives, and possible threats to their tax-exempt status. Many organizations are responding by refining program design, renegotiating grants, training staff, and adjusting public-facing language to mitigate risks.
The consensus is that the sector is on the brink of rapid contraction. This means fewer nonprofits, fewer services, and increased pressure on the organizations that do survive. As local and state governments attempt to fill this gap, there will be significant strains on the social safety net. In this environment, some organizations are reducing their strategic planning cycles from years to months as they wait for clearer funding signals.
Regulatory Enforcement Remains Active
Despite the mounting pressures on the sector, state regulators continue to register charitable organizations, oversee charitable solicitation activities, and protect charitable assets. Recent multi-state enforcement actions, such as the settlement involving Kars-R-Us.com Inc. and its owners alongside 19 states and the FTC, underscore states’ significant effort to engage in coordinated enforcement to prosecute multi-state deceptive fundraising activities.
What You Can Do Now
Here are some practical tips to enhance your governance and compliance.
- Conduct a quick governance and filing audit. Ensure that your bylaws and board actions align with the information you report to the IRS and each state. Confirm that your charitable registrations cover the areas where you actually solicit and double-check that your budget accurately reflects your programming mix. These are the first areas regulators will examine—and they’re the easiest places to get right. Please read our article Consider a Nonprofit Legal Audit to learn more.
- Think of your Form 990 as a multi-state postcard. If it indicates activity that suggests solicitation or programs in a state, ensure that your filings and website disclosures are aligned. If you notice a gap, consult an attorney or the relevant office to determine the best course of action to address it.
- Tighten program and grant documents to address today’s risks. Wherever you use terms that could be read politically or legally (DEI, immigration, safety protocols), define them, tie them to applicable law, and train your staff. Where you rely on partners, embed compliance expectations and reporting in the agreement, but keep it operational rather than aspirational.
- Keep the language used with your audience straightforward. Public materials should reflect your legal reality: who you are, where you work, what you do, and under what rules. If a sentence makes your general counsel raise an eyebrow, your regulator might raise two.
- With funding in flux, adopt a rolling three-to-six-month plan that prioritizes core services, documents compliance assumptions, and allows for flexibility and adaptation. That cadence helps boards fulfill their duties without overpromising.
- If key funding cuts are straining your organization’s financial viability, consider the strategic options to ensure that you can continue providing critical programming to those your organization serves, including a possible merger or similar transaction with an organization providing similar or complementary services. Please read our article The Next Phase – Nonprofit Mergers & Acquisitions to learn more.
