AB 2855 is a bill that adds Section 17510.86 to the California Business and Professions Code which will impose financial disclosure requirements on nonprofits and significant enforcement provisions. The bill has (a) requirements related to a charity’s web site and (b) a required disclosure statement.
Web Site Requirements.
This bill would require an Internet web site produced by, or on behalf of, a charity to contain a “financial disclosures Internet Web page” that includes a disclosure of the charity’s administrative overhead expenses. The overhead expenses to be disclosed are: “the sum total of the salaries, other compensation, and employee benefits of the charity’s executive director and board of directors and all of the charity’s other administrative overhead expenses, as reported on the charity’s most recent Internal Revenue Service Form 990 filing.”
The charity’s web site would also be required to have a copy of the charity’s most recent Internal Revenue Service Form 990 filing.
AB 2855 further requires that each web page on the charity’s web site to contain a direct link to that financial disclosures web page. AB 2855 specifies that the direct link must contain the phrase “Click here to read a full disclosure of the finances, including the salaries and expenses, of this organization.” The bill specifies that the direct link must “be placed in the top right corner of each Internet Web page in at least 14-point, bold, sans serif type font, and shall be clear and conspicuous, as defined in Section 17601.”
Required Disclosure Statement.
AB 2855 would require an Internet web site produced by, or on behalf of, a charity to contain a disclosure statement. This statement must indicate “the percentage of the charity’s funding that is spent on the sum total of the salaries, other compensation, and employee benefits of the charity’s executive director and board of directors and all of the charity’s other administrative overhead expenses, as reported on the charity’s most recent Internal Revenue Service Form 990 filing.” The bill specifies that the “disclosure statement must be printed on the first page of the document in at least 14-point, bold, sans serif type font and shall be clear and conspicuous, as defined in Section 17601.”
AB 2855 would authorize the Attorney General to enforce these requirements by directing the Franchise Tax Board to suspend or revoke a violating charity’s tax-exempt status, by suspending or revoking the registration of a violating charity, or by taking any other enforcement action pursuant to the Attorney General’s existing powers and duties, as specified. The bill provides that the Franchise Tax Board shall reinstate the exemption only upon subsequent notification by the Attorney General that the charity is in compliance with the Business and Professions Code Section 17510.86.
This bill has been criticized because it places duplicative and unnecessary requirements on nonprofits. For instance, IRS Form 990 is already public and readily available document. Tax-exempt organizations must make annual returns and exemption applications filed with the IRS available for public inspection and copying upon request. In addition, the IRS makes these documents available.
Criticism of AB 2855.
This bill has also been criticized because the additional burden on the state. For example, the California Attorney General’s office already maintains a Registry of Charitable Trusts which administers the statutory registration program. All charitable trustees and fundraising professionals are required to register and file annual financial disclosure reports with the Registry. In addition, nonprofit organizations that conduct raffles for charitable purposes are required to register and file an annual financial report. The Registry Search Tool on the Attorney General Charities web site allows a registrant’s public filings to be viewed and downloaded from the Registry database. These public filings include a copy of the annual informational return (Forms 990, 990-PF, and 990-EZ) filed with the Registry, as well as registration forms and documents that organizations are required to file with AG’s office.
It has been observed that overhead expenses are not necessarily a negative. For example, overhead includes necessary costs that charities incur including utilities, insurance, legal compliance and health care benefits. And while a high overhead percentage could theoretically be cause for concern, it is also that case that organizations like food pantries often have high overhead percentages merely by virtue of their high reliance on volunteers.
This bill is referred to the House Committee on Privacy and Consumer Protection and an April 12 hearing date has been set. For the text of the bill please see the following link