Insight
October 28, 2024

Insights from the 2024 NAAG/NASCO Charities Conference Public Day

We are pleased to share our insights from the 2024 NAAG/NASCO Charities Conference Public Day. This event provided a wealth of information on various aspects of charitable regulation and management at the state level. Below is a summary of the important points discussed in each session.

Partnering for Public Good

The first session, “Partnering for Public Good,” explored how charities can effectively address hypothetical situations and navigate the spectrum of state enforcement actions they might encounter. The session emphasized the importance of proactive communication with state charity offices and awareness that periodically, if a charity receives an information request from a regulator, it may be to collect data aimed at influencing policy rather than the beginning of an enforcement action against the receiving charity. A key takeaway was the critical importance of registering with the state to do business and/or engage in fundraising activities; failing to register can be a significant red flag that attracts regulatory scrutiny. Prompt responses to inquiries are essential because delays can suggest noncompliance or concealment. The session also highlighted the risks of over-lawyering responses, which can impede efficient resolutions, and the importance of managing public relations impacts. The panelists underscored the mutual public interest that charities and regulators have in eliminating fraud and protecting the integrity of charitable organizations.

AI’s Role in Charities

The second session, “AI’s Role in Charities,” delved into the transformative potential of generative artificial intelligence (AI) in the nonprofit sector. Generative AI can drastically reduce the time required for tasks such as grant writing and donor acknowledgment letters, making these processes more efficient. However, using generative AI for customer relationship management or database management introduces significant data privacy and security risks that nonprofits must carefully manage. AI can also be used to enhance DEI initiatives and the provision of services, such as facilitating sign-ups for SNAP benefits. A notable issue discussed was that many AI models are based on English, potentially excluding non-Western languages and limiting their accessibility. Regulators are considering the implications of AI, with some states potentially restricting its use before fully understanding its capabilities and risks. Nonprofits are leveraging tools such as Claude and ChatGPT, but if a charity is using a chatbot to identify applicable state laws regulating charities, it is crucial to verify accuracy because these tools may not always provide accurate information on state-specific regulations (as demonstrated live by one of the panelists). 

Fraud Resiliency in the Charitable Sector

The third session, “Fraud Resiliency in the Charitable Sector,” focused on strategies to enhance fraud resiliency within charitable organizations. The session emphasized the importance of maintaining open communication with state charity regulators and highlighted various types of fraud, with asset misappropriation and corruption being the most common. Early detection of fraud is vital to minimizing potential damage, and it was noted that fraud is often perpetrated by individuals close to the organization, such as board members or employees. Implementing robust financial controls is essential, though audits alone do not guarantee fraud prevention. The session underscored the importance of providing multiple reporting channels, including online forms and text submissions, to accommodate different preferences and ensure effective fraud reporting. Additionally, panelists highlighted that fraud schemes often involve multiple perpetrators, indicating systemic issues within an organization that need to be addressed.

Boards Facing Crisis

In the fifth session, “Boards Facing Crisis,” the discussion centered on how boards can navigate organizational crises effectively. The panel included insights from present and former regulators and practitioners on adopting effective governance and communication strategies. These strategies are vital for helping organizations weather crises and maintain stability. The session provided practical advice on how boards can prepare for and respond to crises, emphasizing the importance of transparency, accountability, and proactive communication with stakeholders.

Fiscal Sponsorship Roundtable

The final session, “Fiscal Sponsorship Roundtable,” provided an in-depth look at fiscal sponsorship relationships. The panel discussed the legal frameworks governing these relationships and the benefits and pitfalls associated with them. Fiscal sponsorship can offer significant advantages, such as providing administrative support and enabling projects to receive tax-deductible donations without having to establish their own tax-exempt or legal entity status. However, it also comes with challenges, such as ensuring compliance with legal and regulatory requirements and managing the expectations of both sponsors and sponsored projects. Understanding fiscal sponsorship is crucial for navigating the complexities of these arrangements and leveraging their advantages while mitigating potential challenges.

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We hope these insights help you stay informed and prepared for the evolving landscape of charitable regulation and management. If you have any questions or need further assistance, please do not hesitate to contact us. 

 

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.