The New Rules for Nonprofits

Florida nonprofits are facing an assortment of new restrictions and regulations, which went into effect on July 1, 2014. House Bill 629, commonly referred to as Florida’s “Charity Reform Law,” was developed by Florida’s Department of Agriculture and Consumer Services Commissioner Adam Putnam, shortly after a study by the Tampa Bay Times, which identified a Florida charity as the worst charity in the nation, citing massive fraud and squandering of charitable funds. The law is intended to protect the integrity of Florida nonprofits by combating fraud and weeding out corrupt organizations.

Updates to Current Laws

Some organizations may already find themselves in compliance with certain changes, including the now mandatory conflict of interest policy. Typically, when filing their Form 990, nonprofits are asked to disclose whether they have a conflict of interest policy and how it is enforced. Under the new legislation, organizations registered with the Department of Agriculture are not only required to have a conflict of interest policy, but also to have its directors, officers or trustees annually certify that they are compliant with the policy.

Another regulation that has been altered concerns the disclosure requirements for charitable solicitations. Currently, nonprofits are required to use disclosure requirements on solicitations, but under the Charity Reform Law the disclosure requirements will be mandatory on an organization’s website where the donation is being solicited, usually a “donate here” page or form that asks for personal information in order to complete the donation request.  This includes third-party online donation processors as well.

The legislation also outlines new, strict guidelines for updating information with the Department of Agriculture. In the past, updates ranging from an organization beginning to solicit contributions in new states to disciplinary action taken against board members could be disclosed annually with renewal of its registration. Organizations now must file an update within 10 business days of the change or else face penalties, such as automatic suspension of its registration.

Changes in Financial Reporting

In lieu of a financial statement, any charitable organization or sponsor may submit an IRS Form 990. IRS Form 990s submitted by charitable organizations or sponsors that receive more than $500,000 in annual contributions must be prepared by a CPA or a professional.

Nonprofits with annual revenue exceeding $1 million that spend less than 25 percent of expenses on program services will now be obligated to file more detailed financial reports, including required reporting on how revenue is being allocated to areas such as fundraising and travel.  Employee salaries will also be placed under more scrutiny, specifically consultants or service providers with salaries above $100,000 annually.

The new law will also crack down on the filing of annual registrations and financial statements with the Department of Agriculture. Parent organizations that include chapters or branches are still able to file consolidated financial statements. However, they must now submit an individual Form 990 for each chapter or branch. In the past, an organization was allowed to file a 60-day extension for the submission of its annual registration or financial statement while the current registration remained in effect. Under the new law, nonprofits are no longer able to file an extension for annual registrations and will only be able to extend filing financial reports if it is deemed for a “good cause.” Failure to file either of these will result in automatic expiration of the organization’s registration.

Combating Fraud

One of the main goals of the new legislation is to combat fraud. Measures include a ban on charitable solicitations by any organization with an officer, director or trustee who has committed a felony in the state of Florida. Similarly, organizations that have violated certain laws in other states will be banned from soliciting funds in Florida. The law also requires that professional solicitors, whether they are an internal part of an organization or a third party, follow strict registration, licensing and disclosure requirements. Professional solicitors who operate like telemarketers will be required to provide fingerprints for background checks if they collect sensitive financial information, submit scripts used to conduct solicitations and report the percentage of contributions collected that will be provided to
the charity.

According to the Department of Agriculture’s website, the Florida Charity Reform Law will also create an interactive database where the public can access information on charities. This includes leadership, location, contact information, financial reports and any violations in order to help people choose their charities wisely.

The Effects on Florida Nonprofits

Though the law will affect all nonprofits throughout the state, the effects can vary significantly depending on the size of the organization. Further, the Department of Agriculture has not released any information on how the law will be implemented and enforced. This can lead to confusion on what action a nonprofit must take.

One important step to ensure a nonprofit is compliant with the new law is to confirm that the organization is properly registered to raise funds in the state of Florida through the Department of Agriculture. Unless an organization is a government agency, or falls into a specific category of religious or educational institution, it must have the proper permit or be exempt from requiring a permit. Once obtained, this status must be renewed annually.

The Department of Agriculture will release the final proposed rule for public comment soon and informational webinar(s) will be available through a partnership with The Department of Agriculture, The Florida Philanthropic Network and the Florida Nonprofit Alliance.

To understand the new financial reporting rules under the Charity Reform Law, you can seek the advice of a Certified Public Accountant. However, you should also consult with your attorney regarding the legal implications of the new law.