Understanding State vs. Federal Charity Regulation

State governments, primarily through Attorneys General and Secretaries of State, play a key role in charity regulation.

While some may think about the Internal Revenue Service as a U.S. government regulator of charities, that agency is generally focused on how charities comply with federal tax law to maintain their tax-exempt status. Also, some donors are familiar with the IRS Form 990, the annual financial form that charities complete if their gross receipts are $200,000 or more (or the shorter IRS Form 990-EZ if less than that threshold.)

For the most part, however, state charity regulators (such as state offices of the Attorneys General and the Secretaries of State) serve as the primary regulators of charities. The majority of states require charities to annually register and file financial information if they intend to solicit for charitable donations in that state. And, they can take action against charities found violating the duties of obedience, loyalty and care in how they manage the assets of the organization. When identified, states also can act on misleading appeals and/or fundraising campaigns that are not properly administered.

But the IRS and state regulators are quick to point out that the receipt of charitable tax-exempt status, completion of the IRS Form 990, and/or registration with a state agency does not constitute or imply endorsement, approval or recommendation by that government entity.

Meeting Standards Beyond Legal Requirements

As a standards-based charity evaluator, BBB Wise Giving Alliance looks beyond the legal requirements in completing its reports on charities. While some of these issues in the BBB Standards for Charity Accountability overlap with legal requirements, the specific recommendations included in these standards, in many instances, call for practices that stretch beyond what the law can address. The distinction between legal requirements and voluntary recommendations is also reflected in the language used to describe them. One complies with regulations because the law requires it, in contrast one meets a standard if one chooses to follow it. In some ways, BBB Wise Giving Alliance seeks to help fill the trust gap between what charities are required to do by law and what the public expects them to do as good stewards of their generosity.

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Heart of Giving Podcast – Stacey D. Steward on The Evolving Mission of Mothers Against Drunk Driving

This week’s Heart of Giving Podcast features Stacey D. Stewart, CEO, Mothers Against Drunk Driving (a BBB Accredited Charity) which works to promote greater awareness about the problem of substance-impaired driving and underage drinking, to mobilize communities in eliminating these problems, and to support and provide advocacy services to drunk and drugged driving victims and their families.

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Explore Three of Our Latest Reports

We are always working with charities to publish or update reports for donors. Visit Give.org or local BBBs to check out any charity before giving. Our recently evaluated charities include:

• Global Impact
• Opportunity International 
• Institute for Social Policy and Understanding 

Finally, remember to let us know by going to give.org/charity-inquiry if you are interested in seeing a report on a charity not on the list and we will do our best to produce one.

Protecting Charities and Donors from Charity Fraud

Charity fraud remains a persistent challenge in the nonprofit sector, and experts are sharing crucial advice on how organizations can strengthen their defenses against it.

Each year the National Association of Attorneys General (NAAG) and the National Association of State Charity Officials (NASCO) hold a one-day conference that includes both regulators and charities to discuss various issues facing the charitable sector. As in past years, BBB Wise Giving Alliance attended this event which was held in Baltimore, Maryland on October 8^th. One of the featured panels was titled “Fraud Resiliency in the Charitable Sector” and included moderator, Beth Short, Director of Outreach and Education, Ohio Attorney General’s Office along with two speakers: Jennifer Blasy, Manager, Your Part-time Controller, and Mason Wilder, Research Director, Association of Certified Fraud Examiners.

Beth began the discussion by encouraging charities to take steps to prevent fraud and “make yourself a hard target so that [a potential fraudster] will move on to someone else.” Mason Wilder said “trust is not an internal control… [charities] should prioritize their limited fraud resources” to help address this issue. He also explained there is a difference between internal fraud (such as employees or business partners committing fraud) and external fraud (such as scam emails, system hacks, etc.). Mason described three major types of internal fraud: corruption, asset misappropriation, and financial fraud. Further, undisclosed conflicts of interest are often a major risk factor that intersects with both corruption and asset misappropriation. But the costliest fraud is usually check and payment tampering.

Beth reminded the audience that once the money is gone, it is generally not recoverable and such theft reduces the community’s trust in charities.  Jennifer added that everyone thinks they are untouchable, but they’re not. Mason warned that people don’t stop to commit fraud in just one instance. If the charity does not report the criminal behavior to authorities out of fear of bringing attention to their circumstance, the fraud will be repeated at the next nonprofit that hires the person. He explained that is a sad recurring theme at organizations.

Mason noted that according to the latest edition of Occupational Fraud 2024 published by the Association of Certified Fraud Examiners, fraud at nonprofits makes up 10% of all occupational fraud with a median loss of $76,000. In a third of the reported cases, the lack of internal controls is the key fraud weakness. Activities that can help improve fraud resistance include monthly staff financial reviews, Board review of finances, reviewing payroll before it gets paid, reviewing credit card statements, and establishing a tone within the organization such as a zero-tolerance policy for fraud.

In response to these points, BBB Wise Giving Alliance notes that some of the BBB Standards for Charity Accountability address areas that can improve fraud resistance, including but not limited to, Standard 1 which addresses board oversight of the operations and staff of the charity and Standard 5 which addresses related party transactions. 

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Heart of Giving Podcast: Ruth Holden-Hodson Discusses Climate-Friendly Solar Cooking for Vulnerable Populations

This week’s Heart of Giving Podcast features a discussion with Ruth Holden-Hodson, a member of the governing board of Solar Cookers International (a BBB Accredited Charity) that through advocacy and research, spreads solar thermal cooking technology, which aims to address the problem of inadequate household energy by providing a sustainable and environmentally friendly tool, with the goal of reducing greenhouse emissions and protecting biodiversity and habitats. 

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Explore Three of Our Latest Reports

We are always working with charities to publish or update reports for donors. Visit Give.org or local BBBs to check out any charity before giving. Our recently evaluated charities include:

• American Kidney Fund
• Defenders of Wildlife 
• Marine Corps Association Foundation 

Finally, remember to let us know by going to give.org/charity-inquiry if you are interested in seeing a report on a charity not on the list and we will do our best to produce one.

The Power of Photos in Charity Appeals: Impact and Ethical Guidelines

The adage “a picture is worth a thousand words” reminds us of the immense value a photograph can have in telling a story. So, it is not surprising that charities often turn to pictures as a means of motivating many to give. Whether it is a suffering child, an abused animal, a refugee camp, or an area devastated by a natural disaster, these images can grab our attention, touch our emotions, and silently ask us to respond. Even if the potential donor is not reading all the copy contained in the printed or online appeal, the carefully selected picture can mean all the difference between turning the page or making a gift to help address the need that is expressed so well.

Photos can sometimes raise an issue with the BBB Standards for Charity Accountability, specifically, Standard 15, which calls for solicitations and informational materials, distributed by any means, to be accurate, truthful, and not misleading, both in whole and in part. For example, if an appeal includes an outdated picture, it could raise a concern with this standard. Readers will likely assume that a photograph of a child in a solicitation is current unless told otherwise. It is possible that such use may not represent an intent for the charity to deceive, the charity may just be using a popular story that has generated successful fundraising responses in past years. That’s fine but if the story and photo are older than three years, we hope the charity will also accurately represent its age so that donors will not mistakenly believe this is a recent event.

Recent hurricane disasters also bring to mind about using photographs of past similar events. Again, unless told otherwise, potential donors will assume the pictures being displayed in appeals reflect the current natural disaster and not a past one. Charities engaged in disaster solicitations should watch out for such mistakes if they are not depicting the specific earthquake, flood, or tornado described in their requests for support. Of course, context is also important, and BBB WGA would review the entire appeal and the charity’s explanations before reaching a conclusion. 

It also would be wise for a charity to get permission from the parents or guardians of a child before they begin using these photos in appeals, billboards, or other distributions. This can help avoid controversies if the use of the picture is questioned at a later date as some families may not want to participate in this manner.

The emergence of advanced technology, such as AI, introduces another element of consideration on this issue. At relatively low cost, AI can create images that didn’t exist. This raises new issues for charities and donors, but to some extent, the potential concerns overlap with previous issues as explained above. Overall, the more transparent charity appeals are about the source of such photos, the less likely they will be challenged.  

Heart of Giving Podcast – Ricardo Maldonado Discusses Poetry and Social Change

For this week’s Heart of Giving Podcast, Ricardo Maldonado, President and Executive Director, Academy of American Poets (a BBB Accredited Charity) shares his journey from Puerto Rico to leading American poetry and explains how it can drive social change and cultural preservation.

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Explore Three of Our Latest Reports

We are always working with charities to publish or update reports for donors. Visit Give.org or local BBBs to check out any charity before giving. Our recently evaluated charities include:

• AARP Foundation
• Interfaith Social Services 
• Dan Marino Foundation 

Finally, remember to let us know by going to give.org/charity-inquiry if you are interested in seeing a report on a charity not on the list and we will do our best to produce one.

How to Support Hurricane Milton Relief

Hurricane Milton strikes the west coast of Florida today and is expected to have dangerous wind gusts and storm surges. This impact on Florida’s west coast is especially tragic as it has not yet recovered from the devastation caused by Hurricane Helene on September 26^th. For those seeking to help those in need by making charitable contributions, BBB Wise Giving Alliance offers the following advice:

• Find groups that can provide fast assistance. See if the disaster relief charity has an on-the-ground presence in the impacted areas. Unless they already have staff there, it may be difficult to provide quick assistance. Check if their website describes how they can address immediate needs.
• Be cautious about in-kind assistance. Donating clothing, food or other in-kind donations may not be the best way to help unless the charity has the ability to properly distribute such aid. Ask about their transportation and distribution plans.
• Impacted families will seek shelter and immediate needs. Many individuals in flooded areas will seek safety in shelters and need access to food and water. Charities focused on such activities serve a vital role in helping communities address natural disasters.
• Consider crowdfunding requests. If engaging in crowdfunding, it is safest to give to someone you personally know and trust. Also review the platform’s policies and procedures, keeping in mind that while some crowdfunding sites take significant measures to vet posts, others don’t.
• Verify the charity’s trustworthiness. Rely on expert opinion when it comes to evaluating a charity. We recommend giving to charities that meet all 20 of the BBB Standards for Charity Accountability found at Give.org.

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BBB Accredited Charities Supporting Hurricane Relief Efforts

The following BBB Accredited Charities (i.e., meet the 20 BBB Standards for Charity Accountability) are engaged in activities to assist hurricane relief efforts. This list will be updated as additional efforts come to our attention. (updated 10/10/24)

Charity Name	BBB Give.org Report	Relief Efforts
American Kidney Fund	Review Report	Learn more and donate
American Red Cross	Review Report	Learn more and donate
ASPCA	Review Report	Learn more and donate
Americares	Review Report	Learn more and donate
Church World Service	Review Report	Learn more and donate
Direct Relief	Review Report	Learn more and donate
Episcopal Relief & Development	Review Report	Learn more and donate
Feeding America	Review Report	Learn more and donate
GlobalGiving	Review Report	Learn more and donate
Heart to Heart International	Review Report	Learn more and donate
Humane Society of the United States	Review Report	Learn more and donate
International Medical Corps	Review Report	Learn more and donate
Matthew 25: Ministries	Review Report	Learn more and donate
Project Hope	Review Report	Learn more and donate
Salvation Army	Review Report	Learn more and donate
Save the Children	Review Report	Learn more and donate
United Methodist Committee on Relief	Review Report	Learn more and donate
World Renew	Review Report	Learn more and donate
World Vision	Review Report	Learn more and donate

 

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Building Trust Series – Interview with CEO of Jacinto Convit World Organization

In this Building Trust Video Series episode, BBB Wise Giving Alliance interviews Ana Federica Convit, CEO and Founder of Jacinto Convit World Organization (a BBB Accredited Charity) which seeks to provide free access to modern diagnostics to those who need it most, while training new generations of professionals. It supports areas of public health, such as cancer and infectious diseases, for vulnerable patients in developing countries.

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Heart of Giving Podcast: Rev. Bill Roscoe on Meeting the Needs of Boise’s Unhoused and Addicted

This week’s Heart of Giving Podcast features a discussion with Rev. Bill Roscoe, President and CEO, Boise Rescue Mission Ministries (a BBB Accredited Charity). Rev. Roscoe addresses the often-overlooked challenges of homelessness in Boise, Idaho and explores their strategies to tackle this complex problem.

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Explore Three of Our Latest Reports

We are always working with charities to publish or update reports for donors. Visit Give.org or local BBBs to check out any charity before giving. Three of our recently evaluated charities include:

• Move United
• Patient Advocate Foundation 
• Physicians for Human Rights 

Finally, remember to let us know by going to give.org/charity-inquiry if you are interested in seeing a report on a charity not on the list and we will do our best to produce one.

Breaking Down the Three Phases of Aid After Hurricane Helene

With a death toll that has exceeded 160 people in six states, many areas across the South are still climbing out of the devastation left in the wake of Hurricane Helene, especially North and South Carolina. As many roads and bridges are out, some areas are inaccessible. BBB Wise Giving Alliance notes that disasters such as this typically involve three phases and provide many opportunities to provide donations.     

Rescue Phase – This phase of relief gets the most media attention as well as emotional responses from donors. Trained rescue teams, law enforcement, federal workers, and others help to locate survivors that need immediate assistance. Boats travel across flooded areas seeking to help people and animals get to safety. These urgent activities took place immediately after Hurricane Helene passed and is lasting several days.

Relief Phase – The majority of donations are usually directed to organizations engaged in the relief phase. This involves providing shelter, meals, clothing, blankets, water and other essentials for victims and their families. Experienced disaster relief groups are generally the best at delivering these needs as quickly as possible to impacted communities. Some local charities can also be helpful as they already have a presence in the areas served, but may face challenges if a large number of people need help. Keep in mind that some families with destroyed and/or flooded homes may need to travel hundreds of miles to find an available hotel or friends/family members that have space.

Recovery Phase – The efforts to rebuild after the physical damage, especially a flooding event, is messy and challenging. Charities and others will be engaged in rebuilding roads, homes, schools, houses of worship, businesses and other community fundamentals. This involves time and huge sums of money. Unfortunately, these things take place after the headlines have passed and often don’t receive sufficient public attention and/or donations.

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BBB Accredited Charities Supporting Hurricane Helene Relief Efforts

The following BBB Accredited Charities (i.e., meet the 20 BBB Standards for Charity Accountability) are engaged in activities to assist Hurricane Helene relief efforts. This list will be updated as additional efforts come to our attention. (Updated 10/10)

Charity Name	BBB Give.org Report	Relief Efforts
American Kidney Fund	Review Report	Learn more and donate
American Red Cross	Review Report	Learn more and donate
ASPCA	Review Report	Learn more and donate
Americares	Review Report	Learn more and donate
Church World Service	Review Report	Learn more and donate
Direct Relief	Review Report	Learn more and donate
Episcopal Relief & Development	Review Report	Learn more and donate
Feeding America	Review Report	Learn more and donate
GlobalGiving	Review Report	Learn more and donate
Heart to Heart International	Review Report	Learn more and donate
Humane Society of the United States	Review Report	Learn more and donate
International Medical Corps	Review Report	Learn more and donate
Matthew 25: Ministries	Review Report	Learn more and donate
Project Hope	Review Report	Learn more and donate
Salvation Army	Review Report	Learn more and donate
Save the Children	Review Report	Learn more and donate
United Methodist Committee on Relief	Review Report	Learn more and donate
World Renew	Review Report	Learn more and donate
World Vision	Review Report	Learn more and donate

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Heart of Giving Podcast: Mike Erwin on Building Health-Focused Communities for Veterans

This week’s Heart of Giving Podcast features Mike Erwin, Executive Director, Team Red, White and Blue (a BBB Accredited Charity) which supports veterans as they prioritize their well-being by offering real-life and virtual opportunities to build a healthier lifestyle, with a strong focus on mental and physical health. The organization reports it has chapters across the country that enable veterans to connect in their communities.

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Explore Three of Our Latest Reports

We are always working with charities to publish or update reports for donors. Visit Give.org or local BBBs to check out any charity before giving. Our recently evaluated charities include:

• Children’s Cancer Foundation
• Mercy For Animals 
• National Center for Learning Disabilities 

Finally, remember to let us know by going to give.org/charity-inquiry if you are interested in seeing a report on a charity not on the list and we will do our best to produce one.

Audited Financial Statements vs. IRS Form 990
Charity finances are top of mind for most donors as demonstrated by the most recent Give.org Donor Trust Report survey of 2,100 adult Americans. While BBB Wise Giving Alliance urges donors to take a broader look, charity finances still come first to many potential donors. Given that reality, what is the best source for charity financial information?  While BBB WGA reviews the both the IRS Form 990 and the charity’s audited financial statements, when it comes to financial assessment, we tend to focus more on the audited financial statements for several reasons.

1. 1. Reliability of audited financial statements. Reliability, relevance, comparability, and understandability are some of the core objectives of Generally Accepted Accounting Principles (GAAP). As a standards-based charity evaluator, we also value such principles. GAAP represents the accounting standards established in the United States by the Financial Accounting Standards Board. In turn, the auditor’s opinion attached to audited financial statements will identify any material aberration from GAAP so that users are aware of these differences when reviewing financial information. In contrast, the IRS Form 990 was not designed or intended to follow GAAP.
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3. 2. Donated services and the use of facilities. Under certain conditions, donated services are required to be recognized and included as part of revenues and/or expenses in a charity’s audited financial statements. The IRS Form 990 does not permit these items to be included as part of revenues and expenses reported in that form. For some charities, such in-kind contributions are significant and offer a more complete financial picture.
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5. 3. Unrealized gains or losses on investments. For charity audited financial statements, unrealized gains or losses on investments must be reflected in the financial statements’ revenues. An unrealized gain occurs when the current market value of an asset (for example, a stock) exceeds its purchase price, but the asset has not been sold. For charities of considerable size, this is vital information that helps provide a more complete financial picture of the resources available to the organization. A similar result can be said for unrealized losses. The IRS Form 990, however, does not permit these unrealized gains or losses to be included in the revenues or expenses of the charity. Although they are not included in the revenues and expenses section, the IRS Form 990, however, has a reconciliation section in Part XI, line 5 that enables unrealized gains and losses to be disclosed.
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7. 4. Consolidated and combined financial statements. In some cases, a charity may be closely affiliated with other nonprofit organization(s) in terms of governance, finances, and fundraising efforts. Under certain conditions, GAAP may require the finances of these organizations to be consolidated into a single entity as one audited financial statement. Or a combined statement might result in showing each entity separately but in one document. Either case provides a more complete picture of the charity’s finances. In terms of the IRS Form 990, separate forms would be completed for each nonprofit organization regardless of the close ties between them. As a result, the IRS approach can present more of a challenge for users.
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9. 5. Houses of worship. Organizations that operate as houses of worship (churches, synagogues, mosques, etc.) are not required to complete and file an IRS Form 990. However, in order to ensure proper financial oversight, houses of worship of significant size may have audited financial statements prepared. BBB Wise Giving Alliance does not report on houses of worship unless they are engaged in significant solicitation of the general public as opposed to just soliciting their respective congregations.

BBB Charity Standard 11 calls for charities to have audited financial statements when total income exceeds $1 million. For charities, whose annual gross income is less than $1 million, a review by a certified public accountant is sufficient to meet this standard. For charities, whose annual gross income is less than $250,000, an internally produced, complete financial statement is adequate as long as it includes the same elements (i.e., statement of financial position, statement of activities, statement of cash flows, notes, etc.) as the audited financial statements. If this is not available for such smaller charities, then the IRS Form 990 or 990-EZ Form would be sufficient.

Given all the above, why does the IRS Form 990 receive so much attention? The main reasons are accessibility and the inclusion of some non-financial information. IRS Form 990 data can be obtained from many sources, including the IRS. In addition, there are portions of the IRS Form 990, such as a roster of the board, leadership compensation, and governance information, one would not find in an audited financial statement.

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Heart of Giving Podcast

This week’s Heart of Giving Podcast features two guests from The Center For Effective Philanthropy, Phil Buchanan, President, and Grace Nicolette, Vice President. They offer valuable insights on effective giving, the state of nonprofits, and the future of philanthropy. Their perspective is both inspiring and thought-provoking. Both of them also co-host the Center’s podcast, Giving Done Right.

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Recent Reports

We are always working with charities to publish or update reports for donors. Visit Give.org or local BBBs to check out any charity before giving. Our recently evaluated charities include:

• Episcopal Relief & Development
• Mercy Ships 
• Tax Foundation 

Finally, remember to let us know by going to give.org/charity-inquiry if you are interested in seeing a report on a charity not on the list and we will do our best to produce one.

Generosity Commission Releases Report

On September 17^th, The Generosity Commission released its report, Everyday Actions, Extraordinary Potential: The Power of Giving and Volunteering. The Commission was launched in 2021 in response to one of the most significant trends reshaping civil society in the United States over the last several decades: the decline, observable across multiple surveys, in the proportion of Americans who give to and volunteer with charitable organizations.

The report details commissioned research, expert testimony from scholars and practitioners, and conversations with everyday people. It offers an important snapshot of giving and volunteering with charities today and proposes a set of recommendations to address declines in giving and volunteering rates. Recommendations in the report include ideas for how fundraisers, funders, and business leaders can better promote giving and volunteering.

BBB Wise Giving Alliance’s President and Chief Executive Officer, Art Taylor, served as Co-chair of The Generosity Commission’s Policy and Government Relations Taskforce. BBB WGA encourages charity leaders and donors to read the report and explore their role in furthering giving and volunteering.

The Generosity Commission report includes nine recommendations to help increase giving and volunteering:

1. 1. 1. Increase the depth and breadth of data on giving and volunteering
   2. 2. Close the generosity evidence-to-practice gap
   3. 3. Encourage public figures and leaders to speak openly about how they give and volunteer
   4. 4. Take youth seriously as givers and volunteers
   5. 5. Utilize all of philanthropy’s resources in support of everyday giving and volunteering
   6. 6. Support community foundations to take a leading role in encouraging giving and volunteering
   7. 7. Reinforce the leading role of businesses, as conveners of employees, to encourage their volunteerism and giving
   8. 8. Increase the availability of the charitable contribution tax deduction
   9. 9. Sufficiently fund the IRS Exempt Organizations division and state charity regulators and simplify regulatory compliance

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Heart of Giving Podcast

This week’s Heart of Giving Podcast features a discussion with Yuriy Boyechko, Founder and CEO, Hope for Ukraine (a BBB Accredited Charity) which provides food, medical attention, shelter, and education to individuals and families in the poorest communities in Ukraine.

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Recent Reports

We are always working with charities to publish or update reports for donors. Visit Give.org or local BBBs to check out any charity before giving. Our recently evaluated charities include:

• Society of St. Andrew
• FUSION 
• ACT Now Education 

Finally, remember to let us know by going to give.org/charity-inquiry if you are interested in seeing a report on a charity not on the list and we will do our best to produce one.

9/11 Fundraising Lessons

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Heart of Giving Podcast

This week’s Heart of Giving Podcast features a discussion with Renee Byng Yancey, President & CEO, The Community Foundation for Northern Virginia which seeks to build social trust and community engagement. She also shares insights into the changing landscape of giving and community needs.  

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Recent Reports

We are always working with charities to publish or update reports for donors. Visit Give.org or local BBBs to check out any charity before giving. Our recently evaluated charities include:

• Movember Foundation
• Rape, Abuse and Incest National Network 
• Penny Appeal USA 

Finally, remember to let us know by going to give.org/charity-inquiry if you are interested in seeing a report on a charity not on the list and we will do our best to produce one.