California Enacts Bill to Combat Noncompliant Charities

By Jeffrey D. Davine

The California State Legislature recently passed Assembly Bill 2077 (“AB 2077”). AB 2077, which was signed by Governor Brown, is designed to make it more difficult for charities that have not complied with their registration and reporting obligations to operate in California.

California law requires charities that raise funds in the State of California to register with, and report to, the California Attorney General’s Registry of Charitable Trusts. The California Department of Justice, however, estimates that there are 52,000 charities within California that have not complied with these requirements. Moreover, it is estimated that there are at least 130,000 additional non-California charities operating in the State that have not complied with these requirements. Many of these charities are scamming donors.

AB 2077 was introduced by Assemblyman Travis Allen (R-Huntington Beach). It amends Government Code Section 12587.1 and permits the Attorney General of the State of California to apply more of the approximately $7 million generated annually from registration fees paid by charities, commercial fundraisers, and fundraising counsel, for the enforcement of the registration and reporting provisions that are imposed on charities (and certain other persons/entities that assist charities).

In drafting the legislation, Assemblyman Allen said that more resources were required to root out “scam charities.” He cited a study publicized last year that had been conducted by The Center for Investigative Reporting and a Florida newspaper. The study exposed unscrupulous charities that managed to collect millions from donors purportedly to assist sick and missing children, cancer patients, and veterans but spent only a very small percentage of the funds collected in furtherance of their charitable programs. According to Allen, there are a significant number of dishonest charities that rely on telemarketers to solicit contributions from unsuspecting Californians. If a contribution is secured, the telemarketers will often forward only a small amount of the contribution to the charity (sometimes as little as 3%) and retain the remaining amount as a fee.

The additional funds that will be appropriated as a result of AB 2077 will be used to support increased staffing to: (i) conduct administrative appeals and court actions related to delinquencies; (ii) assist unregistered charities in complying with the registration and reporting requirements; (iii) review initial applications and financial reports; and (iv) provide public education and protection activities.

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