BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 2327|
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THIRD READING
Bill No: AB 2327
Author: Feuer (D)
Amended: 8/6/12 in Senate
Vote: 21
SENATE JUDICIARY COMMITTEE : 4-1, 7/3/12
AYES: Evans, Blakeslee, Corbett, Leno
NOES: Harman
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 62-10, 5/14/12 - See last page for vote
SUBJECT : Charitable organizations: enforcement
SOURCE : Author
DIGEST : This bill authorizes the Attorney General (AG)
to issue cease and desist orders for violations of the
Supervision of Trustees and Fundraisers for Charitable
Purposes Act including failing or refusing to produce
required records, making a material false statement, as
specified, failing to file complete financial reports, or
engaging in specified prohibited acts. This bill also
authorizes the AG, after giving five days' notice, to
impose a civil penalty of up to $1000 per act or omission,
for any act or omission in violation of the Act.
Commencing on the fifth day after notice, this penalty
would accrue at the rate of $100 per day for each day of
noncompliance. This bill permits the AG to suspend the
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registration of any person or entity who the AG had
assessed a penalty against pursuant to these provisions.
This bill grants any person or entity subject to penalties
under the Act, a review hearing as specified, so long as
the person or entity requests the hearing within 30 days of
receipt of notice of the AG's action. This bill requires a
charitable organization, in any year that the balance sheet
of that charitable organization shows that it holds
restricted net assets, while reporting negative
unrestricted net assets, to provide an explanation of its
compliance with its charitable trust responsibilities and
proof of directors' and officers' liability insurance
coverage to the Attorney General's Registry of Charitable
Trusts.
ANALYSIS : Existing law establishes the Supervision of
Trustees and Fundraisers for Charitable Purposes Act (Act),
which 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 (AG). (Gov. Code Sec. (GOV) 12580 et
seq.)
Existing law establishes the primary responsibility for
supervising charitable trusts, for ensuring compliance with
trusts and articles of incorporation, and for protection of
assets held by charitable trusts and public benefit
corporations, in the AG. (GOV Sec. 12598(a).)
Existing law provides that the AG shall be entitled to
recover from defendants named in a charitable trust
enforcement action all actual costs incurred in conducting
that action. (GOV Sec. 12598(b).)
Existing law provides that any person who violates the Act
with intent to deceive or defraud any charity or individual
is liable for a civil penalty not to exceed $10,000. (GOV
Sec. 12591.1(a).)
Existing law provides a fine not to exceed $1000 for a
first offense under the Act and a fine not to exceed $2,500
for all subsequent violations. (GOV Sec. 12591.1(b)(1) et
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seq.)
Existing law requires all moneys recovered by the AG to be
deposited into the General Fund and be used to offset the
costs of future charitable trust enforcement actions by the
AG. (GOV Sec. 12598(d).)
This bill would authorize the AG to issue a cease and
desist order when an entity or person subject to the
provisions of the Act has committed a violation of the Act
including:
failing or refusing to produce required records of the
organization;
making a material false statement in any application,
statement or report;
failing to file financial reports, or filing incomplete
financial reports; or
engaging in specified prohibited acts.
This bill permits the AG, after giving five days' notice,
to impose a civil penalty not to exceed $1,000 per act or
omission, for any act or omission in violation of the Act.
Penalties would accrue at the rate of $100 per day for each
day of noncompliance, commencing on the fifth day after
notice.
This bill authorizes the AG to suspend the registration of
any person or entity assessed penalties under the Act.
This bill grants any person or entity subject to penalties
under the Act, a review hearing, as specified, so long as
the person or entity requests the hearing within 30 days of
receipt of notice of the AG's action.
This bill authorizes the AG to seek an injunction, order of
receivership, restitution or order of accounting to ensure
due application of charitable funds.
This bill provides that for any year that the balance sheet
of a charitable organization shows that it holds restricted
net assets, while reporting negative unrestricted net
assets, the organization shall provide an explanation of
its compliance with its charitable trust responsibilities
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and proof of directors' and officers' liability insurance
coverage to the Attorney General's Registry of Charitable
Trusts.
Background
Fiscal sponsor organizations (FSO) manage the assets of one
or more nonprofit organizations for a fee. FSOs may enable
a number of nonprofits to share a common administrative
platform, thereby increasing efficiency. FSOs may also
provide services including payroll, employee benefits,
publicity, fundraising assistance, and training.
While the services provided by FSOs may relieve nonprofits
of managerial and administrative duties, thus, allowing
them to focus on the goals and missions of the
organizations, media reports have chronicled the loss of
millions of dollars in charitable revenues as the result of
FSOs improperly using donations. In 2003, PipeVine Inc., a
San Francisco-based FSO, collapsed and later admitted to
having misspent at least four million dollars in charitable
contributions. In that case, concerns were publicly
expressed about PipeVine Inc. prior to the loss of the
charitable funds.
Again, in 2010, the Association for Firefighters and
Paramedics, Inc., a FSO based out of Santa Ana, California,
misrepresented how donations were spent and used $33,000
worth of charity funds for board meetings in San Diego and
Las Vegas, and a Caribbean cruise for board members and
their families. The Office of the Attorney General (AG)
reported that "through its investigation, �then AG] Brown's
office obtained a list of California residents who donated
to the Association for Firefighters and Paramedics.
Responses to a questionnaire sent to those California
residents revealed that telemarketers calling on behalf of
the charity told people their donation would be used to
help pay for the care of burn victims in their area, along
with supporting the fire department and paramedics in their
town." The AG reported that 80 to 90 percent of the
donations received did not go to victims, local
departments, or charities, but were used to pay for the
fundraising expenses of the FSO. (Harris, Brown Reaches
Settlement with Charity for Burn Victims Over Deceptive
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Fundraising Tactics, September 2010, Office of the Attorney
General.)
The Supervision of Trustees and Fundraisers for Charitable
Purposes Act (Act) governs charitable corporations and
other legal entities that hold or solicit property for
charitable purposes and is supervised and enforced by the
AG. However, the AG only has the authority to seek fines
where there is proof of fraud or an intent to defraud.
This bill instead authorizes the AG to issue cease and
desist orders or fines when a violation of the Act has
occurred, thus removing the need for proof of fraud before
action may be taken.
Comments
According to the author:
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 allow the assessment
of penalties for any violation of the Act.
There have been high-profile incidences of fiscal
sponsor organizations that used or lost the funds they
managed for other not-for-profit organizations. This
may be devastating to an organization that has trusted
the fiscal sponsor organization with all of its
financial assets. The amendments add a requirement for
those fiscal sponsor organizations that hold onto and
manage the assets of other organizations to carry
director and officers insurance. This provides relief
to victim organizations in the event a fiscal sponsor
organization spends or otherwise loses the assets of
an organization of which they manage.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
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ASSEMBLY FLOOR : 62-10, 05/14/12
AYES: Achadjian, Alejo, Allen, Ammiano, Beall, Bill
Berryhill, Block, Blumenfield, Bonilla, Bradford,
Buchanan, Butler, Campos, Carter, Cedillo, Chesbro,
Conway, Cook, Davis, Dickinson, Eng, Feuer, Fong,
Fuentes, Furutani, Galgiani, Garrick, Gatto, Gordon,
Gorell, Halderman, Hall, Harkey, Hayashi, Roger
Hern�ndez, Hill, Huber, Hueso, Huffman, Jones, Lara,
Bonnie Lowenthal, Ma, Mendoza, Miller, Mitchell, Monning,
Nielsen, Pan, V. Manuel P�rez, Portantino, Silva,
Skinner, Smyth, Solorio, Swanson, Torres, Wagner,
Wieckowski, Williams, Yamada, John A. P�rez
NOES: Donnelly, Beth Gaines, Grove, Hagman, Knight, Logue,
Mansoor, Morrell, Norby, Olsen
NO VOTE RECORDED: Atkins, Brownley, Charles Calderon,
Fletcher, Jeffries, Nestande, Perea, Valadao
RJG:n 8/7/12 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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