BILL ANALYSIS �
AB 2327
Page 1
Date of Hearing: April 24, 2012
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 2327 (Feuer) - As Amended: April 16, 2012
SUBJECT : CHARITABLE ORGANIZATIONS: ENFORCEMENT
KEY ISSUE : should THE ATTORNEY GENERAL BE GIVEN THE AUTHORITY
TO ISSUE CEASE and desist orders, in addition to CIVIL
PENALITIES, AGainst persons or entities committing acts
violating the supervision of trustees and fundraisers for
charitable purposes act?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
This non-controversial bill seeks to provide the Attorney
General the power to issue a cease and desist order whenever the
Attorney General determines a person or entity commits an act or
omission in violation of a provision of the Supervision of
Trustees and Fundraisers for Charitable Purposes Act (Act).
This bill authorizes the Attorney General to impose a civil
penalty on any person or entity for each act or omission
constituting a violation of the Act. Finally, this bill
empowers the Attorney General to suspend the registration of any
person or entity after the Attorney General has imposed a
penalty against that person or entity in accordance with the
provisions of the Act. The measure appears both timely and
useful as instances of fraud involving charitable organizations
can cost charities millions of dollars in donations. The author
has worked closely with the Attorney General's Office in
crafting this legislation, and it has no known opposition.
SUMMARY : Seeks to provide the Attorney General the authority to
issue a cease and desist order or seek civil penalties against
any person or entity violating the Supervision of Trustees and
Fundraisers for Charitable Purposes Act (the Act).
Specifically, this bill :
1)Permits the Attorney General to issue a cease and desist order
whenever the Attorney General finds that an entity or person
subject to the provisions of the Act has committed a violation
of the Act including:
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a) Failing or refusing to produce required records of the
organization;
b) Making a material false statement in any application,
statement or report;
c) Failing to file financial reports, or filing incomplete
financial reports;
d) Engaging in specified prohibited acts.
1)Permits the Attorney General, after giving five (5) days'
notice, to impose a civil penalty not to exceed one thousand
dollars ($1,000) per act or omission, for any act or omission
in violation of the Act or Chapter 4 (commencing with Section
300) Division 1 of Title 11 of the California Code of
Regulations. The penalty will accrue at the rate of one
hundred dollars ($100) per day for each day of noncompliance,
commencing on the fifth day after notice.
2)Permits the Attorney General to suspend the registration,
under the Act, of any person or entity assessed penalties
under the Act.
3)Grants any person or entity subject to penalties under the
Act, a review hearing in accordance with the procedures set
forth in Chapter 15 (commencing with Section 999.1) of
Division 1 of Title 11 of the California Code of Regulations,
so long as the person or entity requests the hearing within
thirty (30) days of receipt of notice of the Attorney
General's action.
4)Permits the Attorney General to seek an injunction, order of
receivership, restitution or order of accounting to ensure due
application of charitable funds.
EXISTING LAW :
1)Provides that charitable corporations or trustees, commercial
fundraisers, fundraising counsel, or coventurers who hold or
solicit property for charitable purposes are required to file
a registration statement, articles of incorporation, and an
annual financial report with the Attorney General.
(Government Code Section 12580 et seq.)
2)Provides that the primary responsibility for supervising
charitable trusts in California, for insuring compliance with
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trusts and articles of incorporation, and for protection of
assets held by charitable trusts and public benefit
corporations, resides in the Attorney General. (Government
Code Section 12598(a).)
3)Provides that the Attorney General shall be entitled to
recover from defendants named in a charitable trust
enforcement action all actual costs incurred in conducting
that action. (Government Code Section 12598(b).)
4)Provides that all moneys recovered by the Attorney General
shall be deposited into the General Fund and shall be used to
offset the costs of future charitable trust enforcement
actions by the Attorney General. (Government Code Section
12598(d).)
5)Provides a fine not to exceed one thousand dollars ($1,000)
for a first offense under the Act and a fine not to exceed two
thousand five hundred dollars ($2,500) for all subsequent
violations. (Government Code Section 12591.1(b)(1) et seq.)
COMMENTS : This non-controversial bill seeks to improve
oversight of charitable fundraisers to encourage giving. In
support of the measure, the author notes:
Many individuals and families have been hit hard
financially during this economic crisis, which in turn has
had negative financial ramifications for nonprofits that
depend on charitable giving. With scaled back federal and
state programs in recent years, many nonprofits have
increased their capacity to provide those services that
have been cut. While charitable giving declined 4.2%
between 2008 and 2010 (according data from the Giving USA
Foundation), giving remains relatively robust at an
estimated $290 billion in 2010. With fewer charitable
dollars available, however, it is imperative that the
individuals and organizations generosity serves its
intended purposes.
The Supervision of Trustees and Fundraisers for Charitable
Purposes Act regulates persons or entities that raise funds
for nonprofits. The Attorney General enforces the Act, but
the Act precludes the Attorney General from imposing a
penalty for any violation unless the Attorney General
proves fraud. This bill would remove that limitation and
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allow the assessment of penalties for any violation of the
Act.
The Need for Greater Enforcement: Several recent media reports
have chronicled the loss of millions of dollars in charitable
revenues as the result of charitable fundraisers improperly
using millions of dollars in donations (Los Angeles Times
"Nonprofits Fear Money in Center's Care Vanished" February 14,
2012). In several cases, concerns were expressed about an
organization prior to the eventual loss of charitable funds.
The current law only permits the Attorney General to seek fines
after an act or omission has occurred, or to pursue common law
remedies in court. Currently, the Attorney General lacks clear
power to prevent frauds from occurring. This bill adds another
weapon in the Attorney General's arsenal by permitting the
Attorney General to issue a cease and desist order before an act
or omission has occurred. Under this bill, as soon as the
Attorney General learns of concerns regarding a fundraiser's
practices, or notices inconsistences, irregularities or
omissions from a charitable organization mandating filings, the
Attorney General can step in to stop fraud or deceit hopefully
before they can harm charitable organizations. If the Attorney
General believes action beyond a cease and desist order is
necessary this bill permits the Attorney General to seek an
injunction.
This bill would also permit the Attorney General to suspend the
registration of any entity in violation of the Act that the
Attorney General had previously fined. Any entity subject to a
registration suspension would be permitted to file for a hearing
reviewing the merits of the suspension pursuant to the
procedural guidelines set forth in the California Code of
Regulations.
Struggling Charities and the Boost in Confidence: Charitable
organizations reported a significant reduction in donations as a
result of the "Great Recession" of 2008. Although donations
have yet to return to the pre-2008 levels, many charities now
report that donations are slowly rising. However, instances of
fraud (including a recent case involving the board of a San
Diego based charity for burn victims diverting over $100,000 in
donations for personal expenses) are undermining the public's
confidence. This bill hopefully will help struggling charities,
by reassuring donors that their contributions are safe and that
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the Attorney General is monitoring charities to ensure that
donations are properly handled.
Streamlining Fines: In addition to giving the Attorney General
greater ability to prevent fraud involving charitable
organizations; this bill also simplifies the penalty scheme for
violations of the Supervision of Trustees and Fundraisers for
Charitable Purposes Act. Existing law imposes a tiered penalty
scheme for violations of the act, a $1,000 fine for a first
violation and a $2,500 fine for subsequent violations. This
bill will replace the existing scheme with a $1,000 for each act
and omission that violates the Act. This bill permits fines to
accrue at the rate of $100 per day for each day a charitable
organization is not in compliance with the Act. By streamlining
the penalty scheme the Attorney General can more efficiently
punish those who violate the Act and place charitable funds at
risk.
Prior Legislation : SB 2015 (Sher, Chapter 475, Statutes of
2000) established the current system of civil penalties for
violating the Act. Created the tiered system of fines for first
versus repeat offenders.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : Nicholas Liedtke & Drew Liebert / JUD. /
(916) 319-2334