SayPro Key financial regulations and compliance standards for fundraising.

To effectively prepare for a fundraising audit, organizations must have a clear understanding of key financial regulations and compliance standards governing fundraising activities. Below are insights into the key regulations and compliance standards relevant to fundraising:

1. IRS Regulations and Guidelines (U.S.)

• Tax-Exempt Status and Fundraising: For organizations that are tax-exempt under 501(c)(3) of the Internal Revenue Code, fundraising activities must align with the organization’s exempt purposes. Donations to these organizations are tax-deductible, which is a key consideration when structuring fundraising efforts.
• IRS Form 990: Nonprofits must file an annual Form 990, which provides transparency to the IRS and the public regarding the nonprofit’s financials, including fundraising revenue, expenses, and program services. The IRS uses this form to verify that funds are being used appropriately in alignment with the nonprofit’s exempt status.
• Charitable Solicitation Registration: Many states in the U.S. require nonprofits to register before soliciting donations. Each state has different rules for registering and reporting fundraising activities. Nonprofits need to ensure they are compliant with each state’s rules where they are soliciting donations.
• Donor Acknowledgment: The IRS requires nonprofits to provide written acknowledgment for donations over $250. This acknowledgment must include the amount of the donation, a description of any goods or services provided in exchange for the gift, and a statement about the nonprofit’s tax-exempt status.

2. State and Local Fundraising Laws

• Charitable Solicitation Laws: Every state in the U.S. has specific rules that govern charitable fundraising activities. Some states require nonprofits to register with the state before soliciting donations, while others may require periodic renewal of registration. Each state also has varying rules about how donations are handled, what disclosures must be made to donors, and what types of fundraising activities require permits.
• Fundraising Event Regulations: Many states have specific rules governing fundraising events such as raffles, auctions, or lotteries. These may include licensing requirements, restrictions on prizes, and rules for how funds from such events must be allocated.
• Reporting Requirements: States may also impose financial reporting requirements on fundraising activities. Nonprofits may be required to submit periodic reports outlining their fundraising efforts, expenses, and allocation of funds raised.

3. Data Privacy and Security Regulations

• GDPR (General Data Protection Regulation): For nonprofits operating in the European Union or handling personal data of EU residents, GDPR compliance is critical. This regulation governs how personal data is collected, stored, and shared. Fundraising activities that involve the collection of donor information (e.g., names, addresses, payment details) must be handled in compliance with GDPR principles of data protection.
• CCPA (California Consumer Privacy Act): Similar to GDPR, the CCPA regulates how organizations handle the personal data of California residents. Nonprofits conducting fundraising in California need to comply with CCPA’s requirements around data collection, sharing, and deletion of donor data.
• PCI Compliance (Payment Card Industry): If a nonprofit accepts online or card-based donations, it must ensure compliance with PCI DSS (Payment Card Industry Data Security Standard). This set of security standards ensures that credit card transactions are secure, protecting donors’ sensitive payment information.

4. Accounting and Financial Reporting Standards

• Generally Accepted Accounting Principles (GAAP): Nonprofits must prepare their financial statements in accordance with GAAP, which ensures that financial reports are consistent, transparent, and accurate. For fundraising, this includes proper tracking of revenue, expenses, and allocation of funds between administrative costs and programmatic activities.
• Financial Statements: Nonprofits must typically produce three core financial statements—Statement of Financial Position (Balance Sheet), Statement of Activities (Income Statement), and Statement of Cash Flows. These statements help ensure that donations and funds are properly recorded, allocated, and used in compliance with financial reporting standards.
• Fund Accounting: Fund accounting is essential for nonprofits, as it allows organizations to track how different types of donations are used. For example, restricted funds must be separately accounted for, ensuring that donations designated for specific programs or purposes are used only for those purposes.

5. Fundraising Expense Regulations

• Unrelated Business Income Tax (UBIT): If a nonprofit engages in activities that are not directly related to its tax-exempt purpose (e.g., selling products or hosting events for profit), it may be subject to UBIT. Fundraising activities that generate income outside the scope of the nonprofit’s exempt purpose could trigger tax liabilities.
• Expense Allocation: Nonprofits must be transparent in how funds raised through donations are spent. The IRS and other regulatory bodies expect nonprofits to demonstrate that a reasonable portion of funds raised is allocated to program services rather than excessive administrative costs. This is especially important when reporting expenses on Form 990.

6. Nonprofit Transparency and Accountability

• Donor Bill of Rights: This set of ethical standards, created by the Association of Fundraising Professionals (AFP), outlines the rights of donors to ensure their contributions are handled ethically and responsibly. It includes principles of transparency, accountability, and the right to be informed about how funds are used.
• Annual Reports: Many nonprofits prepare an annual report that outlines their fundraising activities, program outcomes, and financial performance. This report should be clear, accurate, and easily accessible to the public to maintain transparency and build trust with donors.
• Public Disclosure: Certain financial documents, like IRS Form 990 and audited financial statements, must be made publicly available upon request. Many nonprofits also post these documents on their websites as part of their commitment to transparency.

7. Donor-Restricted Gifts and Fund Management

• Donor Restrictions: Donations may come with restrictions on how the funds should be used. It’s important for nonprofits to track and comply with these restrictions. Fundraising audits often check whether donor-restricted funds have been used in accordance with the donor’s intentions.
• Endowment Funds: If a nonprofit has an endowment fund, there are specific rules about how the fund is invested and how withdrawals are made. Restrictions on endowment use must be clearly documented and followed.

8. Audit Readiness and Compliance

• Internal Controls: Nonprofits should have robust internal controls in place to prevent fraud and ensure compliance with regulations. This includes segregation of duties, financial reconciliations, and clear documentation of all fundraising transactions.
• Audit Trail: A thorough audit trail is essential for ensuring transparency. All donations and fundraising expenses must be documented with receipts, bank statements, and other verifiable records that auditors can easily review.
• Independent Audits: Nonprofits should prepare for regular independent audits, which may be required depending on the size of the organization or the level of fundraising activity. These audits assess whether the nonprofit’s financial practices comply with regulatory standards and whether there are any discrepancies or issues that need to be addressed.

By adhering to these regulations and compliance standards, organizations can ensure their fundraising efforts are legal, ethical, and transparent, which ultimately strengthens their relationship with donors and stakeholders and ensures accountability during the audit process.