I love taking the Tube in England and the charming, English-accented voice that always says “mind the gap.”
It always makes me look down and watch where I’m going.
It’s also great advice for your business when facilitating online donations for a nonprofit.
Because facilitating online donations or round-ups at checkout is so clearly altruistic, we tend to think that it's as simple as passing donations onto the nonprofit with whom you are working.
But…mind the gaps.
In reality, taking online donations in conjunction with a cause marketing campaign is a highly regulated and controlled activity.
A few bad apples along the way have misdirected donations – or kept them for their business – instead of passing them along to their nonprofit cause marketing partners.
So, states have put in place myriad regulations to make sure that taking online donations in a business environment isn’t abused.
Plus, tax and financial reporting requires another layer of financial reporting that verifies your activities.
We’ve identified four major regulatory gaps that businesses often miss when engaging in cause marketing and working with a nonprofit to solicit donations online.
Here they are:
Gap #1 - Forgetting to register as a commercial co-venturer
- Are a for-profit business
- Solicit donations online for a nonprofit
- Use that nonprofit’s image, name, or cause at checkout or in any marketing
You are a commercial co-venturer (CCV).
If you are a CCV, you must register and regularly report compliance and data to multiple states throughout the U.S.
This includes every state in which you solicit donations that has CCV regulations.
If you sell online, that’s probably every regulating state – currently 30 states and growing.
You are required to register in each of those states, provide specific information about the nature of your relationship with the nonprofit, report financial information related to donations solicited (not in all states), and, in some cases, post a surety bond.
Failing to properly register can leave you open to serious fines and penalties, regulatory action, and very nasty press concerning your compliance on soliciting donations.
This is gap #1, and arguably, the most important.
Many businesses are using online platforms to solicit donations, but have not integrated regulatory compliance into their donations technology. This leaves them wide open for significant regulatory risk.
As the regulatory environment has evolved, Change has incorporated legal compliance and financial reporting into its online donations platform.
A for-profit business simply cannot afford to risk regulatory compliance issues when it works with a nonprofit in cause marketing.
The financial fines and penalties are prohibitive.
Gap #2 - Proper recordkeeping for tax reporting
You're collecting donations.
That looks a lot like revenue.
You’re paying money out (to a nonprofit), and that looks a lot like an expense.
But who’s to say how much you received as donations and paid out?
What is your 3rd-party single source of truth?
Your CPA (and maybe the IRS if there is an audit) will want to see a 3rd-party-generated report that shows the revenue collections, the direct expenses associated with those collections, and the specific accounting for the payment of the donations to respective nonprofit organizations.
Change has built a suite of specific financial reports to provide the 3rd-party-generated financial reporting necessary to satisfy your tax CPA and any government regulatory body that may come along.