Navigating Commercial Fundraisers

Many nonprofit organizations choose to manage their fundraising efforts in-house, leveraging the passion and dedication of their staff and volunteers. However, there are instances where external assistance becomes necessary. This can take the form of fundraising consultants, joint ventures, or, as we’ll focus on today, commercial fundraisers. Understanding the regulatory landscape surrounding commercial fundraisers in California is crucial for both charities and donors to ensure transparency and accountability.

What is a Commercial Fundraiser?

A commercial fundraiser is an individual or entity that receives compensation from a charitable organization to directly solicit, receive, or control funds, assets, or property for charitable purposes. It’s important to distinguish them from charity employees, board members, or fundraising counsel (like attorneys) who advise on fundraising strategies but do not directly handle funds.

Commercial fundraisers are subject to stricter oversight due to the potential for high commission rates, sometimes exceeding 50% of donations. While legal, this practice necessitates stringent regulations to protect both charities and donors.

Registration and Reporting Requirements

Commercial fundraisers operating in California must adhere to the following:

• Registration: They must register with the California Attorney General’s Registry of Charitable Trusts before engaging in any fundraising activities.
• Bonding: A $25,000 bond is required, and registration must be renewed annually.
• Financial Reporting: Annual financial reports must be submitted to the Attorney General.
• Record Keeping: Detailed financial records must be maintained for 10 years.
• Nonprofit Registration Verification: Commercial fundraisers can only solicit on behalf of nonprofits that are also registered with the Attorney General.

Nonprofit Tip 

Always verify that a commercial fundraiser is properly registered with the California Attorney General before entering into any agreement.

Notice and Disclosure Obligations

To ensure transparency, commercial fundraisers must:

• Notice of Intent: File a notice of intent to solicit with the Attorney General 10 days before commencing a campaign.
• Disclosure of Fundraising Costs: Upon request, disclose to donors the percentage of donations allocated to fundraising expenses.
• Commercial Fundraiser Identification: Clearly identify themselves as commercial fundraisers to potential donors.
• Accurate Representation: Refrain from misrepresenting the charity or the intended use of donations.

Mandatory Contract Requirements

A written contract between the charity and the commercial fundraiser is mandatory and must include:

• Charitable Purpose: A clear description of the fundraising activity’s charitable purpose.
• Responsibilities: A detailed outline of each party’s obligations.
• Timeline: Effective and termination dates of the agreement.
• Fee Arrangements: A clear breakdown of fee structures, whether fixed or percentage-based.
• Cancellation Clause: A provision allowing the charity to cancel the contract within 10 days without penalty.
• Payment Schedule: A stipulation requiring payment to the charity within 5 working days of fundraising activity.

Key Considerations for Nonprofits

• Remember that your organization is ultimately responsible for the actions of your commercial fundraisers.
• Never hire an unregistered commercial fundraiser.
• Pay close attention to the contract’s payment structure and ensure robust cash controls are in place.

Key Considerations for Donors

• Don’t hesitate to ask a fundraiser if they are a commercial fundraiser.
• Ask what percentage of your donation will go to the charity.
• Confirm that the charity is properly registered with the California Attorney General.

Conclusion

Understanding and adhering to these regulations is vital for both nonprofits and donors. By prioritizing transparency and accountability, we can ensure that charitable contributions are used effectively to support worthy causes.