BILL ANALYSIS �
AB 2327
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CONCURRENCE IN SENATE AMENDMENTS
AB 2327 (Feuer)
As Amended August 6, 2012
Majority vote
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|ASSEMBLY: |62-10|(May 14, 2012) |SENATE: |23-12|(August 22, |
| | | | | |2012) |
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Original Committee Reference: JUD.
SUMMARY : Seeks to improve oversight of charitable fundraisers.
Specifically, this bill :
1)Permits the Attorney General (AG) to issue a cease and desist
order whenever the AG finds that an entity or person subject
to the provisions of the Supervision of Trustees and
Fundraisers for Charitable Purposes Act (Act) has committed a
violation of the Act including:
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; or,
d) Engaging in specified prohibited acts.
1)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 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 $100 per day for each day of noncompliance,
commencing on the fifth day after notice.
2)Permits the AG 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, as specified, so long as the person or
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entity requests the hearing within 30 days of receipt of
notice of the AG's action.
4)Permits the AG to seek an injunction, order of receivership,
restitution or order of accounting to ensure due application
of charitable funds.
5)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 and proof of
directors' and officers' liability insurance coverage to the
AG's Registry of Charitable Trusts.
The Senate amendments provide that for any year that the balance
sheet of a charitable organization shows that it holds
restricted net assets as specified, the organization shall
provide an explanation of its compliance and proof of directors'
and officers' liability insurance coverage.
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 AG.
2)Provides that the primary responsibility for supervising
charitable trusts in California, for insuring compliance with
trusts and articles of incorporation, and for protection of
assets held by charitable trusts and public benefit
corporations, resides in the AG.
3)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.
4)Provides that all moneys recovered by the AG shall be
deposited into the General Fund and shall be used to offset
the costs of future charitable trust enforcement actions by
the AG.
5)Provides a fine not to exceed $1,000 for a first offense under
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the Act and a fine not to exceed $2,500 for all subsequent
violations.
6)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.
AS PASSED BY THE ASSEMBLY , this bill was substantially similar
to the version approved by the Senate.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS : 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 $4
million 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 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% of
the donations received did not go to victims, local departments,
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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 Fundraising Tactics, September 2010,
Office of the Attorney General.)
Under existing law, the AG may fine a nonprofit organization if
it fails to file its annual registration statement, fails to
file a report, or fails to correct deficiencies in a report or
statement. The AG must first notify the nonprofit organization
of the violation, and give the entity 30 days to cure the
violation before a fine may be issued. The first fine may not
exceed $1,000, and each subsequent fine may not exceed $2,500.
A nonprofit organization is also liable for a penalty, not to
exceed $10,000, if the AG proves violation of the Act with an
intent to defraud.
In light of the amount of funds that have been misused by FSOs
highlighted in the media, these fines appear to be
inconsequential, and do not function as a sufficient deterrent
against misuse of charitable assets. Furthermore, allowing a
FSO 30 days to cure a violation, or 10 days to correct
deficiencies in a statement or report before a fine may be
issued, creates little incentive for FSOs to comply with
existing requirements. To address those issues, this bill would
authorize the AG to fine for both non-compliance and
misstatements, thus creating incentives to produce accurate and
timely reports. This bill would also authorize the AG to issue
cease and desist orders, which would give the AG an additional
enforcement mechanism in the event that fines and penalties are
not compelling sufficient compliance with the Act. Arguably, if
it becomes probable that a FSO is misappropriating charitable
assets, the authority to issue a cease and desist order will
also operate to freeze remaining funds held by the FSO, and as a
result, maximize the amount of donations that may be returned to
nonprofit clients.
This bill would also authorize a FSO, who has been the subject
of an enforcement action by the AG, to request a hearing for a
review of that enforcement action. Arguably, the availability
of a hearing ensures that the due process rights of the FSO will
be protected.
Analysis Prepared by : Drew Liebert / JUD. / (916) 319-2334
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FN: 0005192