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7. How Problems with Charities Come to the Attention of Regulators
The Secretary of State’s office typically receives 25-30 complaints about charities per year, mostly from concerned citizens. Many of the complaints that we receive are the result of an organization’s failure to adopt basic best practices, especially in the areas of governance and transparency. Several of the organizations named in these complaints simply failed to understand or appreciate the legal requirement to provide corporate records to members upon request, to provide copies of state and federal disclosure forms to anyone upon request (e.g. state registration forms filed with the Secretary of State and copies of the IRS Form 990 and Form 1023), or to follow the rules set out in their bylaws or in the Colorado Revised Nonprofit Corporations Act, especially as regards the appointment, election, and removal of directors. An organization with a strong, independent board that regularly consults best practices and adopts those best suited to its size and mission can largely avoid missteps that generate official complaints.
Directors and officers that merely defer to the leadership of a strong-willed president or board chair fail to appreciate the importance of their own fiduciary duties and the delicate state of public confidence in their organization. When they withhold basic information from their members or the public that should be made readily available, such as copies of their annual reports and audited financial statements, or when they fail to diligently review the financial statements themselves, they risk damaging that public faith and invite official complaints from aggrieved parties.
Incorporating best practices into the organization’s culture and understanding the regulatory environment in which they operate can help strengthen their ability to pursue their missions with the transparency and efficiency that the public expects.
The chart below summarizes complaints about charities received by the Secretary of State over the past five years. Bear in mind that the Attorney General’s office also receives citizen complaints and referrals from this office when allegations fall within the Attorney General’s jurisdiction.
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