NCPGC: Updates from the California Attorney General on Charity Regulation and Enforcement

On July 27, 2017, the Northern California Planned Giving Council (NCPGC) presented the program Updates from the California Attorney General on Charity Regulation and Enforcement featuring Supervising Deputy Attorney General Elizabeth Kim.

Program Description:  The Attorney General’s Office will provide updates on the work of the Registry and the Charitable Trusts Section’s legal and Audit units, including: On-Line Registration; Administrative Enforcement Proceedings; Audits and Investigations; UPMIFA; and more. This session will appeal to nonprofits and professional advisors and those interested in the enforcement and administrative operations of the AG’s office.

Here are some highlights from the program:

  • The Attorney General (AG) has primary responsibility for overseeing charities, charitable trusts, and charitable solicitations
  • The AG is responsible for protecting charitable assets for their intended use because they benefit all Californians
  • The AG’s Charitable Trusts Section is composed of:
    • Registry of Charitable Trusts (Registrar and staff of 50+)
      • Manages initial registration and annual registration renewals and reporting
      • Delinquencies, raffles, complaints, dissolution, transactions required to be submitted to the AG (e.g., mergers, sale/disposition of substantially all assets, conversion to mutual benefit or for-profit, self-dealing transactions, loans to directors/officers, sale/transfer of nonprofit hospital facilities), questions from the public
    • Legal and Audits Unit in San Francisco and Los Angeles
  • On-Line Registration – currently only works for charity registration renewals (Forms RRF-1)
  • Future: Single Portal Registration
  • Enforcement Program
    • Focus: mismanagement and diversion of charitable assets from intended use
    • Cases developed from complaints received from the public, media, review of annual filings, probate notices (note that AG investigations are confidential)
    • Types of enforcement:
      • informal contact, audit letter (request for documents and records)
      • subpoena (Gov. Code §§ 11180, 12588)
      • corrective action letter (identifying violations and requesting correction and monitor)
      • assurance of voluntary compliance (Gov. Code §12591.2) – filed with the court, enforced through contempt proceedings
      • administrative actions, including refuse to register, revoke registration, suspend registration, cease and desist order, impose penalties – see, e.g., Regulations made effective January 1, 2016 – since such time:
        • 200 suspensions (taking organizations off the AG records), 300 revocations, 20 cease and desist orders
        • more work to do: 62,000 organizations current delinquent and 137,000 currently not registered!
        • Under Sec. 315 of the Regulations, AG may assess penalties up to $1,000 for each violation of the Supervision Act (with 30 days’ written notice of opportunity to correct or appeal); and ongoing penalties accruing at a rate of $100 per day until violation is corrected
      • civil litigation
      • criminal charges
    • Enforcement issues of interest/to watch:
      • Joint Cost Allocation – misleading donors by artificially reducing fundraising expenses
      • Gifts-in-Kind – misleading donors by, for example, over-valuing GIK or taking credit for value of GIK when the charity was only a pass-through entity – see Breast Cancer Society Receivership Order
      • Social Media Solicitation
    • Nonprofit Transactions Requiring Notice or Attorney General Approval 
    • Raffles
    • UPMIFA (Prob. Code §§ 18501-18510) – applies to endowments and other institutional funds
      • Release or modification of restrictions – see Prob. Code § 18506; cy pres; Prob. Code § 15409
    • Resources