BILL ANALYSIS Ó
AB 2327
Page 1
ASSEMBLY THIRD READING
AB 2327 (Feuer)
As Amended April 16, 2012
Majority vote
JUDICIARY 9-0 APPROPRIATIONS 16-1
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|Ayes:|Feuer, Wagner, Atkins, |Ayes:|Fuentes, Harkey, |
| |Dickinson, Gorell, Huber, | |Blumenfield, Bradford, |
| |Monning, Wieckowski, | |Charles Calderon, Campos, |
| |Alejo | |Davis, Gatto, Hall, Hill, |
| | | |Lara, Mitchell, Nielsen, |
| | | |Norby, Solorio, Wagner |
| | | | |
|-----+--------------------------+-----+--------------------------|
| | |Nays:|Donnelly |
| | | | |
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SUMMARY : Seeks to provide the Attorney General the authority to
issue a cease and desist order or seek civil penalties against
any person or entity violating the Supervision of Trustees and
Fundraisers for Charitable Purposes Act (Act). Specifically,
this bill :
1)Permits the Attorney General to issue a cease and desist order
whenever the Attorney General finds that an entity or person
subject to the provisions of the Act has committed a violation
of the Act including:
a) Failing or refusing to produce required records of the
organization;
b) Making a material false statement in any application,
statement or report;
c) Failing to file financial reports, or filing incomplete
financial reports; or,
d) Engaging in specified prohibited acts.
1)Permits the Attorney General, after giving five days' notice,
to impose a civil penalty not to exceed $1,000 per act or
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omission, for any act or omission in violation of the Act or
Chapter 4 (commencing with Section 300) Division 1 of Title 11
of the California Code of Regulations. The penalty will
accrue at the rate of $100 per day for each day of
noncompliance, commencing on the fifth day after notice.
2)Permits the Attorney General to suspend the registration,
under the Act, of any person or entity assessed penalties
under the Act.
3)Grants any person or entity subject to penalties under the
Act, a review hearing in accordance with the procedures set
forth in Chapter 15 (commencing with Section 999.1) of
Division 1 of Title 11 of the California Code of Regulations,
so long as the person or entity requests the hearing within 30
days of receipt of notice of the Attorney General's action.
4)Permits the Attorney General to seek an injunction, order of
receivership, restitution or order of accounting to ensure due
application of charitable funds.
EXISTING LAW :
1)Provides that charitable corporations or trustees, commercial
fundraisers, fundraising counsel, or coventurers who hold or
solicit property for charitable purposes are required to file
a registration statement, articles of incorporation, and an
annual financial report with the Attorney General.
2)Provides that the primary responsibility for supervising
charitable trusts in California, for insuring compliance with
trusts and articles of incorporation, and for protection of
assets held by charitable trusts and public benefit
corporations, resides in the Attorney General.
3)Provides that the Attorney General shall be entitled to
recover from defendants named in a charitable trust
enforcement action all actual costs incurred in conducting
that action.
4)Provides that all moneys recovered by the Attorney General
shall be deposited into the General Fund and shall be used to
offset the costs of future charitable trust enforcement
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actions by the Attorney General.
5)Provides a fine not to exceed $1,000 for a first offense under
the Act and a fine not to exceed $2,500 for all subsequent
violations.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
1)Any costs to the Attorney General's office would be absorbable
within existing resources and would be offset to some extent
by revenue from civil penalties.
2)Minor ongoing costs to the courts associated with additional
civil actions.
COMMENTS : This non-controversial bill seeks to improve
oversight of charitable fundraisers to encourage giving. In
support of the measure, the author notes:
Many individuals and families have been hit hard
financially during this economic crisis, which in turn has
had negative financial ramifications for nonprofits that
depend on charitable giving. With scaled back federal and
state programs in recent years, many nonprofits have
increased their capacity to provide those services that
have been cut. While charitable giving declined 4.2%
between 2008 and 2010 (according to data from the Giving
USA Foundation), giving remains relatively robust at an
estimated $290 billion in 2010. With fewer charitable
dollars available, however, it is imperative that the
individuals and organizations generosity serves its
intended purposes.
The Supervision of Trustees and Fundraisers for Charitable
Purposes Act regulates persons or entities that raise funds
for nonprofits. The Attorney General enforces the Act, but
the Act precludes the Attorney General from imposing a
penalty for any violation unless the Attorney General
proves fraud. This bill would remove that limitation and
allow the assessment of penalties for any violation of the
Act.
Several recent media reports have chronicled the loss of
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millions of dollars in charitable revenues as the result of
charitable fundraisers improperly using millions of dollars in
donations (Los Angeles Times "Nonprofits Fear Money in Center's
Care Vanished" February 14, 2012). In several cases, concerns
were expressed about an organization prior to the eventual loss
of charitable funds.
The current law only permits the Attorney General to seek fines
after an act or omission has occurred, or to pursue common law
remedies in court. Currently, the Attorney General lacks clear
power to prevent frauds from occurring. This bill adds another
weapon in the Attorney General's arsenal by permitting the
Attorney General to issue a cease and desist order before an act
or omission has occurred. Under this bill, as soon as the
Attorney General learns of concerns regarding a fundraiser's
practices, or notices inconsistences, irregularities or
omissions from a charitable organization mandating filings, the
Attorney General can step in to stop fraud or deceit hopefully
before they can harm charitable organizations. If the Attorney
General believes action beyond a cease and desist order is
necessary this bill permits the Attorney General to seek an
injunction.
This bill would also permit the Attorney General to suspend the
registration of any entity in violation of the Act that the
Attorney General had previously fined. Any entity subject to a
registration suspension would be permitted to file for a hearing
reviewing the merits of the suspension pursuant to the
procedural guidelines set forth in the California Code of
Regulations.
Charitable organizations reported a significant reduction in
donations as a result of the "Great Recession" of 2008.
Although donations have yet to return to the pre-2008 levels,
many charities now report that donations are slowly rising.
However, instances of fraud (including a recent case involving
the board of a San Diego based charity for burn victims
diverting over $100,000 in donations for personal expenses) are
undermining the public's confidence. This bill hopefully will
help struggling charities, by reassuring donors that their
contributions are safe and that the Attorney General is
monitoring charities to ensure that donations are properly
handled.
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In addition to giving the Attorney General greater ability to
prevent fraud involving charitable organizations; this bill also
simplifies the penalty scheme for violations of the Supervision
of Trustees and Fundraisers for Charitable Purposes Act.
Existing law imposes a tiered penalty scheme for violations of
the act, a $1,000 fine for a first violation and a $2,500 fine
for subsequent violations. This bill will replace the existing
scheme with a $1,000 fine for each act and omission that
violates the Act. This bill permits fines to accrue at the rate
of $100 per day for each day a charitable organization is not in
compliance with the Act. By streamlining the penalty scheme the
Attorney General can more efficiently punish those who violate
the Act and place charitable funds at risk.
Analysis Prepared by : Drew Liebert / JUD. / (916) 319-2334
FN: 0003541