Understanding Fundraising Regulations - A Guide for School Stakeholders

Blog Summary: Fundraising is crucial to supporting educational programs, extracurricular activities, and school improvements. This comprehensive guide aims to inform school stakeholders about the necessary fundraising regulations and best practices to ensure compliance and avoid legal issues.

Fundraising is vital to many schools' efforts to support educational programs, extracurricular activities, and school improvements. Although challenging, navigating the landscape of fundraising regulations can help ensure compliance and avoid legal pitfalls. Non-compliance can lead to severe consequences, including financial penalties, loss of tax-exempt status, and damage to the school's reputation. This guide informs school stakeholders on the necessary regulations and best practices for compliant fundraising activities.

Understanding Fundraising Regulations

Learning and adhering to the fundraising regulations can be challenging, but schools must ensure their efforts comply with legal requirements. This section provides an overview of what fundraising regulations entail, why they are essential, and the different levels at which they apply.

Overview of Fundraising Regulations

Fundraising regulations are laws and guidelines that govern fundraising activities and ensure transparency, accountability, and fairness in fundraising efforts. They help protect donors, ensure proper fund use, and maintain the integrity of the fundraising process.

Consider categorizing fundraising regulations into federal, state, and local levels:

• Federal Regulations — The Internal Revenue Service (IRS) governs these regulations, primarily concerning tax-exempt status and reporting requirements for nonprofit organizations, including schools.
• State Regulations - Each state has its own set of laws regarding fundraising activities. These may include registration requirements, solicitation permits, and specific reporting obligations.
• Local Regulations - Local governments may have additional rules regarding fundraising events, such as permits for public events or sales.

Knowing and following these regulations ensures that fundraising activities are legally compliant and ethically conducted.

Common Regulatory Bodies

Several organizations and authorities oversee fundraising activities to ensure compliance with the law:

• Internal Revenue Service (IRS) - The IRS oversees federal tax regulations and the tax-exempt status of nonprofit organizations, including schools.
• State Education Departments - These departments may have specific guidelines and requirements for fundraising activities within their jurisdiction.
• State Attorney General's Office - Often responsible for overseeing charitable solicitations and ensuring that entities use funds for their intended purposes.
• Local Government Agencies - These agencies may require permits for public events and enforce local fundraising regulations.

By understanding the roles of these regulatory bodies, school stakeholders can better navigate the compliance landscape and ensure their fundraising activities meet all necessary legal requirements.

Key Regulatory Requirements

Understanding the key regulatory requirements is essential for schools to conduct fundraising activities responsibly. Let's look into the fundamental aspects of registration and permits, financial reporting and accountability, and tax considerations that schools must adhere to for compliance.

Registration and Permits

One of the first steps in ensuring compliance with fundraising regulations is registering fundraising activities with the relevant authorities, which often involves:

• Registering as a Charitable Organization - Many states require schools to register as charitable organizations if they plan to solicit donations from the public.
• Obtaining Solicitation Permits - Depending on state and local laws, schools may need to obtain permits to conduct fundraising activities, such as door-to-door solicitations, public events, or online fundraising campaigns.
• Compliance with State-Specific Requirements - Each state has its regulations regarding fundraising, so it is crucial to research and comply with the specific requirements in your state.

Failure to register and obtain the necessary permits can result in fines, legal action, and damage to the school's reputation. Therefore, it is essential to ensure all fundraising activities are adequately documented and authorized.

Financial Reporting and Accountability

Transparent financial reporting is a cornerstone of compliant fundraising activities. Schools must maintain detailed records of all fundraising activities to ensure accountability and transparency. Key practices include:

• Detailed Record-Keeping - Maintain records of all income and expenses related to fundraising activities, including receipts, invoices, and bank statements.
• Regular Financial Reporting - Provide regular financial reports to the relevant authorities, school administration, and donors, ensuring transparency and building trust with stakeholders.
• Internal Controls - Implement internal controls to prevent fraud and mismanagement of funds. These can include segregation of duties, regular audits, and precise documentation of financial transactions.

By maintaining transparent financial records, schools can demonstrate their commitment to ethical fundraising practices and compliance with legal requirements.

Tax Considerations

Understanding tax obligations and benefits is essential for schools engaging in fundraising activities. Key considerations include:

• Tax-Exempt Status - Most schools qualify for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. This status provides significant tax benefits but also comes with specific compliance requirements, such as annual reporting to the IRS (Form 990).
• Unrelated Business Income Tax (UBIT) - Schools must be aware of UBIT regulations, which apply to income generated from activities unrelated to their educational mission. This income is subject to federal income tax, and schools must report to the IRS.
• Donor Acknowledgements - Schools must provide donors with appropriate acknowledgments for tax purposes, which include receipts for donations and documentation of the school's tax-exempt status.

By understanding these tax considerations, schools can maximize their fundraising potential while ensuring compliance with federal tax regulations.

Compliance Best Practices

Implementing best practices is crucial for maintaining compliance with fundraising regulations. This section provides actionable advice on establishing clear policies, training staff and volunteers, and monitoring and auditing fundraising activities to ensure adherence to legal requirements.

Establishing Clear Policies

Creating and implementing clear fundraising policies is a fundamental step in ensuring compliance. These policies should outline the procedures for conducting fundraising activities, including:

• Fundraising Approval Process - Establish a process for approving fundraising activities, including criteria for evaluating proposals and ensuring alignment with the school's mission and values.
• Financial Management - Define procedures for managing funds, including handling cash, processing donations, and maintaining financial records.
• Ethical Standards - Establish ethical standards for fundraising activities, such as avoiding conflicts of interest, maintaining donor confidentiality, and ensuring transparency.

Involving legal advisors in policy development can help ensure that all policies comply with relevant laws and regulations.

Training and Education

Training staff and volunteers on fundraising regulations are crucial for maintaining compliance. Key steps include:

• Regular Training Sessions - Conduct regular training sessions for staff and volunteers on fundraising regulations and best practices.
• Resource Materials - Provide resource materials, such as guides and checklists, to help staff and volunteers understand and follow fundraising policies.
• Ongoing Education - Stay updated on changes in fundraising regulations and provide ongoing education to ensure compliance with new requirements.

By investing in training and education, schools can empower their staff and volunteers to conduct fundraising activities responsibly and ethically.

Monitoring and Auditing

Regular monitoring and auditing of fundraising activities are essential for ensuring compliance and identifying areas for improvement. Best practices include:

• Internal Audits - Organize regular internal audits to review financial records, assess compliance with policies, and identify potential issues.
• External Audits - Consider engaging external auditors to provide an independent assessment of fundraising activities and ensure compliance with legal requirements.
• Continuous Improvement - Use audit findings to improve fundraising policies and procedures, ensuring ongoing compliance and effectiveness.

By implementing robust monitoring and auditing practices, schools can maintain the integrity of their fundraising activities and build trust with stakeholders.

Case Studies - Non-Compliance Issues

Custom Fundraising Solutions and Compliance Issues

Background

Custom Fundraising Solutions of Boston South (CFS) has organized hundreds of mattress sale fundraisers across Massachusetts public schools. This popular fundraising program involves students and student groups raising funds by selling mattresses. However, despite its popularity, the program came under scrutiny for non-compliance with state regulations, as highlighted by Russell Stein, Of Counsel at PS&H, in a segment on WFXT's Boston25 News.

Non-Compliance Discovery

The Massachusetts Attorney General's Office discovered that CFS was not operating according to state regulations. Specifically, the company was not registered as a business with the Secretary of the Commonwealth at the time, raising significant legal concerns. This lack of registration is a fundamental breach of state regulations that require all businesses and fundraising entities to be correctly registered and authorized to conduct such activities.

Incident Details

In one investigative report, a student organization received a check for $8,000 from a mattress sale event. However, when questioned about the percentage of gross profits going to the students, CFS owner Jack Isaacs refused to disclose this information. This lack of transparency is concerning and contravenes guidelines from the Massachusetts Attorney General's Office, which mandate that fundraisers must accurately disclose the percentage of funds allocated to the charity if asked.

Lessons Learned

This case underscores the importance of compliance with state regulations for fundraising activities. Schools and student groups should ensure that the companies they partner with for fundraising are fully compliant with all legal requirements, which includes verifying business registration, understanding the financial arrangements, and ensuring complete transparency in how funds are raised and allocated.

Recommendations

For schools and charitable organizations engaging in fundraising activities, consider the following best practices to ensure compliance and protect your interests:

1. Verify Business Registration - Ensure that the fundraising company properly registers with the state.
2. Demand Transparency - Require clear and detailed disclosures about how funds are raised and allocated.
3. Ask Questions - Inquire about who is running the event, the specific roles of all parties involved, and the percentage of proceeds that will go to the charity.
4. Legal Consultation - Consult with legal advisors to review fundraising agreements and ensure compliance with all relevant regulations.
5. Regular Audits - Conduct regular audits of fundraising activities to ensure financial accountability and regulatory compliance.

The case of Custom Fundraising Solutions of Boston South serves as a critical reminder of the importance of regulatory compliance in fundraising activities. By adhering to state regulations and demanding transparency, schools and charitable organizations can protect their interests, ensure donor trust, and maximize fundraising success.

Take Away

Understanding and adhering to fundraising regulations is crucial for the success and sustainability of school fundraising activities. By following the essential regulatory requirements and best practices outlined in this guide, schools can ensure compliance, maintain donor trust, and maximize their fundraising potential.

School administrators, principals, PTA/PTO members, and teachers involved in fundraising activities should take proactive steps to review and update their fundraising policies regularly. By investing in training, establishing clear policies, and conducting regular audits, schools can create a compliant and effective fundraising program that supports their educational mission and benefits the entire community.

To maintain the trust of your community and support your school's goals, make sure your fundraising activities follow all relevant regulations and best practices. By doing so, you can make a significant impact and contribute to the success of your school's fundraising efforts.

FAQs:

1. Why is understanding fundraising regulations important for schools? Understanding fundraising regulations is crucial to ensuring compliance, avoiding legal issues, and maintaining donor trust. Non-compliance can lead to financial penalties, loss of tax-exempt status, and damage to the school's reputation.
2. What are the different levels of fundraising regulations schools must follow? Schools must adhere to federal, state, and local regulations. The IRS governs federal regulations, state regulations vary by state, and local governments may have additional rules for fundraising events.
3. What are the key steps for schools to ensure compliance with fundraising regulations? Key steps include registering as a charitable organization, obtaining necessary solicitation permits, maintaining detailed financial records, and understanding tax obligations related to fundraising activities.
4. How can schools maintain transparency and accountability in their fundraising activities? Schools can maintain transparency by keeping detailed records of all income and expenses, providing regular financial reports, and implementing internal controls to prevent fraud and mismanagement of funds.
5. What should schools do if they discover non-compliance issues in their fundraising activities? Schools should take immediate steps to address them, including consulting with legal advisors, conducting internal audits, and updating fundraising policies to ensure future compliance.

Author Bio

Clay Boggess has been designing fundraising programs for schools and various nonprofit organizations throughout the US since 1999. He's helped administrators, teachers, and outside support entities such as PTAs and PTOs raise millions of dollars. Clay is an owner and partner at Big Fundraising Ideas.