The Impact of Technology on Charities Regulation: Takeaways from the Annual NAAG/NASCO Conference

Technological innovation and the proliferation of data continue to impact nonprofits requiring organizations to rethink programs, fundraising efforts and internal processes to maximize impact in a shifting landscape. It is not surprising, then, that when state charity regulators from across the country convened for this year’s NAAG/NASCO Conference in Washington D.C. on October 2nd the focus was on how technology and access to new sources of data are impacting state charity regulation.

Here are our main takeaways from the conference.

  • Researchers and data scientists from organizations including BoardSource, the Aspen Institute, Charity Navigator and Guidestar are developing a user-friendly resource for searching the electronically filed Form 990s released by the IRS in June 2016. This will provide regulators with a treasure trove of searchable Form 990 data.
  • Regulators are using digitized data as a tool to more closely examine, among other things, joint cost allocations, gift in-kind valuations, expense ratios (comparing fundraising to program services), patterns in the use of certain contractors/fundraisers, and related party transactions.
  • FASB released its updated nonprofit accounting standards in August 2016. Notable changes include the disclosure requirements for the liquidity and availability of resources, reporting of expenses, classifying of assets, and presentation of investment returns. Nonprofits should be aware that regulators are reviewing financials to make sure these rules are followed. Also significant is that auditors failing to uphold appropriate accounting standards will be held accountable by state regulators.
  • Nonprofits should be aware that crowdfunding platforms or other online fundraising vendors may be required to register as professional fundraisers. Given the current state of the law in this area it’s a good idea to ask your attorney to review your relationship with an online fundraising platform. You should especially ensure that you are not contracted with an unregistered fundraiser.
  • D&O insurance providers are increasingly carving out exceptions for personal liability due to a data breach. Nonprofit boards should check their D&O insurance policies to see whether directors and officers are covered in the event of a breach.
  • Nonprofit boards should establish a “culture of security” that is reasonably suited to prevent, or if one should occur, respond to, a data breach. A robust program will include a review of industry specific cybersecurity guidance, obtaining the advice of outside experts, recruiting board members with cybersecurity experience/expertise, and/or creating an ad-hoc board committee to review the organization’s data security systems and breach response plan.
  • NASCO announced that Guidestar and the Department of Better Technology have been awarded the contract for the Multistate Registration and Filing Portal. Terms of their engagement are currently being finalized.
  • Some nonprofits have begun using augmented and virtual reality technology to enhance their fundraising and marketing. While the results are eye-catching and can be highly effective, it is costly and may create added risks or new ethical considerations (e.g., how data is tracked, stored and used and by whom).
  • Regulators and other nonprofit sector stakeholders are facilitating the work of charities that are doing good work in the community and rooting out the “bad actors” to protect the public and maintain the charitable sector as trustworthy. Conference participants discussed developing systems to enhance communication between regulators and other industry participants to achieve this goal.

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