California Senate Bill No. 1262, also known as
the Nonprofit Integrity Act (the Act), was passed in the latter part of 2004 and
imposes significant changes for nonprofit organizations doing business in the
State of California. Charity registrations, audit requirements, audit
committees, compensation reviews and fundraising accountability were all
addressed in this legislative change. Below is a brief summary of each:
Charity Registration (Ch. 919, Sec. 6)
Upon initial receipt of property (cash or
other), charitable organizations now have 30 days to register and file Articles
of Incorporation with the Attorney General’s Registry of Charitable Trusts.
(The former provision allowed corporations to register within six months.)
Audit Requirement (Ch. 919, Sec. 7, Para.
e)
A charitable organization registered with the
Attorney’s General’s office whose annual gross revenues exceed two million
dollars ($2,000,000) must have an independent audit performed in conformity with
generally accepted auditing standards. The financial statements and footnotes
will be prepared in accordance with generally accepted accounting principles.
(Certain grants and other amounts can be excluded from the $2 million-dollar
threshold under certain conditions.) The audit requirement is effective for
fiscal years ending on or after June 30, 2005.
Audit Committee (Ch. 919, Sec. 7, Para.
e2)
Registered charities (that are corporations)
with gross revenues in excess of $2 million-dollars must have an audit committee
appointed by the board of directors. The Act provides details regarding who may
serve on this committee. For example:
-
Committee members may not include the executive
director, chief financial officer, board treasurer, or other staff members
-
Committee members may include 50% of the finance
committee members, exclusive of the chairperson of the finance committee
The audit committee will be the main body
responsible for coordinating and communicating audit activities and results
thereof with the independent accounting firm.
Compensation Review (Ch. 919, Sec. 7,
Para. g)
The governing board of a nonprofit organization
shall review and approve the compensation of the executive director and chief
financial officer to ensure that the compensation is “just and reasonable”.
This process should occur upon initial employment and at any time the agreement
is renewed, extended or modified. The board should keep documentation of this
review on file.
Fundraising Accountability (Ch. 919, Sec.
8)
The Act addresses several issues regarding the
solicitation of funds and obligations associated with fundraising such as:
-
Commercial fundraisers must have a written
contract with the charitable organization for whom they are working
-
Fundraising counsel must have a written contract
with the charitable organization for whom they are working
-
Charitable organizations are prohibited from
engaging in misrepresentations and other certain acts when soliciting
donations
A complete copy of the Act along with some
“Frequently Asked Questions” is available on the State of California’s Office of
the Attorney Journal website (http://caag.state.ca.us/charities).
Please contact us if you have any questions
regarding this information.
Hansen, Hunter & Company, P.C.
Washington, California and Idaho.
