Non-Profit organizations play a critical role in the society (Fremont-Smith, 2009). For many years, Non-Profit organizations have participated in activities that boost the economic development agenda of the country. However, many issues have arisen in regard to the efficiency and effectiveness of the Non-Profit organizations. Due to these issues, legislations have been put in place as a way of ensuring that the Non-Profit organizations are credible and conduct their set objectives. Most of the Non-Profit organizations rely heavily on funds from donors (Fremont-Smith, 2009). Therefore, ensuring these organizations are accountable is essential as it protects the legitimacy of the Non-Profit Institutions. The essay focuses on legislating the Non-Profit fundraising and the impact it would have on the general management and efficiency of the Non-Profit organizations.
Role of Government in Regulating Non-Profit Fundraising
Many Non-Profit organizations depend heavily on the generosity of ordinary citizens and various donors for some or entire funding (Fremont-Smith, 2009). Therefore, fundraising is an important activity for most of the Non-Profit organizations. However, the aspect of fundraising brings about the issue of public trust. Trust is a significant foundation that dictates the relationship between the Non-Profit organizations and the donors (both public and private) (Fremont-Smith, 2009). Therefore, fundraising by the Non-Profit organizations warrants some level of regulation by the government which would benefit both the public and the Non-Profit sector (Fremont-Smith, 2009). Thus the government has a strong role to play in the regulation of the Non-Profit fundraising. As much as many people donate to Non-Profit organizations through their own volition, they have a right to know where their money goes, how their money is used, and whether the funds collected by the Non-Profit organization accomplishes its purpose.
The current environment indicates that it is easier for Non-Profit organizations to source funds especially due to the advancement of technology (Burkett, 2011). Thus the government has a significant role to play to regulate the Non-Profit sector as a way of protecting the public from being conned and eliminating the incidence of fraudulence among the Non-Profit institutions (Fremont-Smith, 2009). Today, there are many Non-Profit organizations that only exist on paper and only survive to fraud donors through fraudulent and deceptive solicitation activities (AFP, 2009). According to an excerpt from 2002 by Association of Fundraising Professionals (AFP) (2009), Americans contributed more than $203 billion to charity organization in 2000. Between 1975 and 1995, the number of Non-Profit organizations had doubled to 1.2 billion while their assets and revenue increased by 312% and 380% respectively (AFP, 2009). Those numbers must be quadruple today. That indicates that more donors are willing to support the work and objectives of the Non-Profit organizations. However, for the support to continue the government must ensure that the Non-Profit sector consists of legitimate, fiscally discreet, and accountable organizations. The government of the United States already has jurisdiction over the Non-Profit sector by having the privilege of issuing Non-Profit status to organizations (Fremont-Smith, 2009). Moreover, the government has the constitutional obligation of regulating Non-Profit organization by virtue of interstate commerce (Neely, 2011). Therefore, it is general responsibility of the government to ensure that the Non-Profit fundraising is credible through proper expansion of the Internal Revenue Service (IRS) through the addition of auditors, investigators, and prosecutors (Neely, 2011).
However, despite the need to regulate the Non-Profit sector, it is important to ensure that regulations are smooth, efficient, and effective. Today, many Non-Profit firms spend millions every year to act in accordance with the existing regulations (Neely, 2011). However, many questions arise on whether these compliance regulations clearly address the aspects of integrity and transparency. Many Americans are much concerned with the efficiency of regulations in stopping and preventing fraud. The government has enough resources to ensure that the concerns by the people are taken into account and also the interests of the Non-Profit organizations are protected (Fremont-Smith, 2009). More focus should be put on stopping and preventing fraud rather than many paper works that the Non-Profit organizations are compelled to fill. Such focus would have prevented the 9/11 controversy where the American Red Cross was accused of diverting the monies intended for the victims of 9/11 to other Red Cross projects.
The States and Regulation of the Non-Profit Fundraising
The states have a significant role to play in the regulations of the Non-Profit fundraising. Most of the Non-Profit organizations are organized and operate in line with the state laws rather than the federal laws. Also, the state government has the most responsibility of preventing charitable fraud. However, most states have different laws with 40 states having laws regulating Non-Profit organizations. Today, Non-Profit organizations are required to register in up to 40 states (Neely, 2011). However, despite the existence of regulations in the 40 states, little resources are devoted to the implementation of the regulations on Non-Profit organizations and their professional consultants (Neely, 2011).
According to Fishman (2015), the regulators are always understaffed and most of their actual responsibilities are to check the validity and correctness of the paperwork. Only a handful of states provide a dedicated staff of inspectors and prosecutors. The states also face numerous challenges such as lack of coordination with the Non-Profit firms. However, despite the challenges that the states face in regulating and monitoring the Non-Profit organizations, they are an ideal authority to regulate the Non-Profit fundraising. The reason is that most of the Non-Profit organization source or solicits funds in the states (Neely, 2011). Therefore, in a bid to protect the residents of the states from charity fraud, it is vital for the state to regulate the Non-Profit fundraising at the state level.
Despite the importance of regulating the Non-Profit fundraising, there has been a conflict between the state government and federal government. Since each state has different regulation requirements, the chances are high that the requirements differ with the requirements at the federal level (Neely, 2011). Therefore, the difference in requirements by the state and the central government has led to some organizations to be considered Non-Profit at the state level, but not at the federal level (Neely, 2011). Such situation affects the fundraising process given they would be exempted from the state tax, but not from federal tax. Such inconsistency must be addressed in the new legislation.
Nature of Legislation
In the process of formulating legislation to regulate and govern Non-Profit fundraising, the Congress should consider Sarbanes-Oxley Act. The Sarbanes-Oxley legislation was able to effectively streamline the management of corporate organizations in the United States in the wake of corporate scandals such as the Enron Scandal (Abdioglu et al., 2015). The major purpose of the Sarbanes-Oxley legislation was to reform the public company accounting and protect the investor. The legislation also emphasized on corporate and auditing transparency, responsibility, and accountability (Abdioglu et al., 2015). Therefore, a legislation of such type is needed to protect the integrity of the Non-Profit sector. Merely soliciting funds for a cause is not enough if the major contributors (donors) are in the dark. The Non-Profit organizations must be compelled to be transparent, accountable, and responsible. Sarbanes-Oxley type of legislation will ensure the Non-Profit sector is streamlined and will encourage more participants (donors) to contribute towards these institutions. In the current setting, charities are required by the federal law to file the Public Information Returns with the federal government and to comply with various federal regulations to maintain their active status.
Additionally, they are required to spend a certain percentage of the funds raised determined by a formula on charity activities. As much as the intention of such laws is to ensure efficiency and minimize the incidence of fraud, such requirement is vague and does not effectively address critical issues such as protecting the interest of the donors. Sarbanes-Oxley type of legislation will provide more specific requirements and elements that would go along way in ensuring accountability and transparency. Many donors are still confidents with the Non-Profit organizations; however, many others will come up if such legislation is passed. In the Sarbanes-Oxley legislation, it provides major elements that govern the public company as well as touching on private companies. The major elements touch on aspects such as accounting, auditor independence, corporate responsibilities, financial disclosures, conflicts of interests, authority and commission resources, and corporate frauds and many other elements. These factors effectively eliminate fraud in the public companies. Thus same principles or elements are required in the governance of the Non-Profit organizations. The donors have the right to information and it is the duty of the government to ensure that they facilitate the availability of information.
Values Politicians should consider during Legislation
Having a legislation that governs the practices of the Non-Profit organization is long overdue. The Non-Profit organizations have played a significant role in the development of the United States. They have complimented the development agenda of the government for a very long time. However, to ensure that the Non-Profit organization continues to thrive, it is vital to ensure that a proper legislation is in place. Proper legislation on Non-Profit organizations and fundraising process will help in eliminating charity fraud and improve efficiency (Fishman, 2015). As the Congress anticipate legislating on the Non-Profit fundraising, it is vital that they consider several values to guarantee fundraising is done in an ethical manner. These principles and values are; Auditing process and donor protection, coordination between the state and federal governments, and the general efficiency of the system within the sector.
The legislation should guarantee the independence of the auditor. The current laws are not strict on auditing but are rather much focused on validity process. The legislation should thus focus on the auditing and action against fraud (Fishman, 2015). The independence of the auditor (internal and external auditors) ensures that the Non-Profit organizations are audited independently and the results revealed without regard to the parties of interest. Such move would help in providing information to the public (especially the donors) on how the monies raised were utilized. That would ensure fraud is eliminated in the sector.
The legislation should also focus on the coordination between the state and feral governments. About 40 states have their own regulation concerning the Non-Profit organizations (Neely, 2011). These regulations sometimes conflict with the federal regulations. In many cases some organizations are considered Non-Profit at the state level, but not at the federal level. The legislation must strive to eliminate such instances. The integrity of the Non-Profit organizations will be enhanced if the regulations in many of the states are harmonized with the federal regulations. Such move will help in eliminating the conflicts that sometimes arise between the state and the federal government concerning the Non-Profit organizations. The elimination of the conflict will further build the confidence of the donors and enhance the benefits of the Non-Profit firms.
The Congress should also take into account the efficiency of the system. The current system requires the Non-Profit organizations to register with 40 states (the states with regulations). In most cases when a Non-Profit organization wants to fundraise, it must file fundraising document with each state it seeks to solicit funds. That means if the Non-Profit firm wishes to fundraise in 40 states (those with regulations), they will be required to file in all those states. Ideally, the fundraising files are almost similar in all the states. Therefore, the Non-Profit organizations are faced with more paperwork which is quite expensive for charity firms given they will have to hire several clerks. The legislation should focus on ensuring harmonization of states requirements to minimize the cost the Non-Profit organizations incur.
Having a strong and efficient regulation will help in boosting donor confidence and efficiency of the Non-Profit organizations. Thus strong and efficient regulation will not have a negative effect on the Non-Profit sector, in fact, many Non-Profit firms will be registered and more donors will participate in providing them with funds. The critical issue that has been affecting the Non-Profit organization is trust and efficiency of the system.
Conclusion
Non-Profit sector has a bigger role to play in the American society. However, proper legislation is needed to ensure they are efficient and conduct their responsibilities diligently. Therefore, the Congress must support the proposition of eliminating supplementary costs such as filing with 40 states and encourage a nationwide team of auditors, investigators, and prosecutors to safeguard the interest of the public. Federalization of the Non-Profit regulations will streamline the sector and increase registration efficiency, minimize costs, encourage donors to contribute millions of dollars for charity, and eliminate fraud.
References
Abdioglu, N., Bamiatzi, V., Cavusgil, S. T., Khurshed, A., " Stathopoulos, K. (2015). Information asymmetry, disclosure and foreign institutional investment: An empirical investigation of the impact of the Sarbanes-Oxley Act. International Business Review, 24(5), 902-915.
AFP. (2009). Association of Fundraising Professionals: Advancing Philanthropy. Retrieved from: http://www.afpnet.org/Publications/ArticleDetail.cfm?ItemNumber=852
Burkett, E. (2011). A Crowdfunding Exemption-Online Investment Crowdfunding and US Secrutiies Regulation. Transactions: Tenn. J. Bus. L., 13, 63.
Fishman, J. J. (2015). Who Can Regulate Fraudulent Charitable Solicitation. Pitt. Tax Rev., 13, 1.
Fremont-Smith, M. R. (2009). Governing nonprofit organizations: Federal and state law and regulation. Harvard University Press.
Neely, D. G. (2011). The impact of regulation on the US nonprofit sector: Initial evidence from the Nonprofit Integrity Act of 2004. Accounting Horizons, 25(1), 107-125.
