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NEW JERSEY REGISTER
VOLUME 38, ISSUE 12
ISSUE DATE: JUNE 19, 2006
RULE PROPOSALS
Law And Public Safety
Division Of Consumer Affairs
Charities Registration Unit

 

Proposed Amendments: N.J.A.C. 13:48-1.3, 2.1, 3.1, 3.3, 3.4, 4.1, 5.1 and 5.3

Initial and Renewal Registration

Authorized By: Kimberly S. Ricketts, Director, Division of Consumer Affairs

Authority: P.L. 2005, c.283.

Calendar Reference: See Summary below for explanation of exception to calendar requirement.

Proposal Number: PRN 2006-194.

Submit comments by August 18, 2006 to:
Kimberly S. Ricketts, Director
New Jersey Division of Consumer Affairs
PO Box 45027
Newark, NJ 07101

The agency proposal follows:

Summary

P.L. 2005, c. 283 (the Act), enacted on January 9, 2006, amends the Charitable Registration and Investigation Act ( N.J.S.A. 45:17A-18 et seq.) to, among other things, raise the threshold for filing audited financial statements, expand the bases on which financial statements may be prepared, specify that the audit must be conducted in accordance with generally accepted auditing standards, and require the filing of any management letters prepared by the auditor in connection with the audit that comments on the internal accounting controls or management practices of the organization. It exempts from the registration requirements certain charitable organizations that do not receive more than $ 10,000 in gross contributions during a fiscal year. The Act also expands the disclosures required to be made in short form and long form registration statements. The Act becomes effective on July 9, 2006.

The Division of Consumer Affairs is proposing amendments to the Charitable Fund Raising rules, N.J.A.C. 13:48, to implement those provisions of the Act that affect the reporting requirements for charitable organizations, including the financial statements that must be filed. The Division interprets the Act to mean that, for charitable organizations already registered, the new reporting requirements apply to the reports due on the first renewal date (without giving effect to any extension) after the effective date of the Act, July 9, 2006. In other words, charitable organizations whose fiscal year ends after January 9, 2006 will file renewal registration statements on the basis of the requirements of the Act. Charitable organizations whose fiscal year ended on December 31, 2005 will file renewal statements on the basis of the current reporting requirements. The proposed amendment to the definition of gross revenue in N.J.A.C. 13:48-1.3 makes clear that a charitable organization's gross revenue includes pledges if they are required to be recognized under the accounting principles used by the organization. Under certain circumstances, financial statements prepared on the modified cash basis would not show pledges as revenue until collected.

The proposed amendments to the fee schedule in N.J.A.C. 13:48-2.1 require all short form filers to pay the same fee, including charitable organizations with gross contributions of not more than $ 10,000 that are no longer required to be registered but which choose to do so. The proposed amendments also make grammatical changes and correct the references to the rules governing extensions of time for filing renewal statements. The Division proposes to amend N.J.A.C. 13:48-3.1 to make clear that a charitable organization whose registration has lapsed or been suspended or revoked may no longer use its registration number.

The proposed amendment to N.J.A.C. 13:48-3.3 provides an exemption from the registration requirement for a charitable organization if and so long as it does not receive gross contributions in excess of $ 10,000 during a fiscal year and if all of its functions are performed by volunteers. An organization that is thus exempt may nevertheless elect to register. The proposed amendment to N.J.A.C. 13:48-3.4 provides that a charitable organization that is not required to file, but elects to file a registration statement must file within six months after the close of its fiscal year and is not entitled to an extension. The Division proposes to amend N.J.A.C. 13:48-4.1 to reflect the fact that charitable organizations that are mandated to file short form registration statements are those with gross contributions between $ 10,000 and $ 25,000. The proposed amendments to N.J.A.C. 13:48-4.1 set forth the contents of the short form registration statement now required under the Act.

The amendments proposed to N.J.A.C. 13:48-4.1 and 5.1 make clear that a charitable organization must register before it operates in the State even if it has not yet commenced solicitation activities. N.J.A.C. 13:48-5.1 also sets forth the new disclosures required under the Act in initial and renewal long form registration statements.

The proposed amendments to N.J.A.C. 13:48-5.3 set forth the new threshold provided in the Act at which financial statements accompanying the annual financial report filed by charitable organizations must be audited. The Attorney General, through the Division, has determined that an increase in the threshold above that provided in the Act is not warranted at this time. The Act authorizes the Attorney General to approve the filing by charitable organizations of financial statements prepared in accordance with accounting principles other than GAAP. The amendments proposed to N.J.A.C. 13:48-5.3 reflect the approval by the Attorney General, through the Division, of the use of financial statements prepared in accordance with the modified cash basis or regulatory basis principles of other comprehensive basis of accounting (OCBOA). The proposed amendments require that a charitable organization must include with its audited financial statements any management letter prepared by the auditor commenting on the organization's internal controls or management practices. The proposed amendments also correct the description of the auditing standards to be employed, namely generally accepted auditing standards.

The Division has provided a 60-day comment period for this notice of proposal. Therefore, this notice is excepted from the rulemaking calendar requirement pursuant to N.J.A.C. 1:30-3.3(a)5.

Social Impact

The proposed amendments to N.J.A.C. 13:48 affect all charitable organizations operating or soliciting contributions in the State of New Jersey. The proposed amendments, implementing the Act, relieve small organizations with gross contributions of $ 10,000 or less of the burden of registration, so long as all of their activities are carried out by volunteers, although it permits them to register. Under current rules, charitable organizations with gross revenue of more than $ 100,000 must file audited financial statements prepared in accordance with GAAP. By raising the threshold at which organizations must file audited financial statements to $ 250,000 in gross revenue, the proposed amendments relieve additional organizations of the cost of an audit. The proposed amendments also authorize charitable organizations to use the modified cash basis or the regulatory basis principles of OCBOA, which the Division believes will benefit officers and directors of charitable organizations as well as the public. Financial statements prepared on the modified cash basis are more easily understood by people who do not have a financial background. The proposed amendments require that a charitable organization disclose more information about itself and its officers, directors and principal salaried employees. The public will benefit from the ability to know whether a particular charitable organization or any of its principals has been determined to have engaged in questionable practices in the past.

Economic Impact

The proposed amendments will relieve smaller charitable organizations of the obligation to register. According to the Division records, 6,280 organizations that filed a registration statement for its most recent fiscal year would not be required to file a renewal. Small organizations that choose to register will now have to pay a fee that was not previously required. Charitable organizations with gross revenue between $ 100,000 and $ 250,000 will no longer have to file audited financial statements unless required to do so by the Attorney General and thus will be relieved of the cost of a mandatory audit. There are 3,461 such charitable organizations. Organizations that are required to file registration statements will have to make disclosures not now required, which may involve additional time, but should not result in direct out-of-pocket costs. Organizations that receive grants may be required by their grantors to report using GAAP or the regulatory basis of accounting. The Division expects that many more organizations will use the modified cash basis of accounting than will use the regulatory method. The Division has been informed by members of the accounting profession that, absent special circumstances, the cost of an audit of financial statements prepared on the modified cash basis should be somewhat less that the cost of an audit of GAAP financials.

Federal Standards Statement

A Federal standards analysis is not required because there are no Federal laws or standards applicable to the proposed amendments.

Jobs Impact

The Division believes that the proposed amendments will neither increase nor decrease the number of jobs in the State.

Agriculture Industry Impact

The proposed amendments will not have any impact on the agriculture industry in the State.

Regulatory Flexibility Analysis

There are thousands of charitable organizations registered with the Division that can be considered to be small businesses, as defined under the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq. The proposed amendments exempt smaller organizations from the reporting requirements and generally make it easier for organizations to comply with financial reporting requirements. See the discussion under the Economic Impact above for information about the effect of the proposed amendments on compliance and reporting requirements. Under existing rules, an organization that is required to file audited financial statements needs a certified public accountant to conduct the audit. The proposed amendments will not require additional organizations to file audited financial statements; rather, under the proposed amendments, 3,461 organizations will be relieved of the obligation to engage accountants to audit the organization's financial statements.

Smart Growth Impact

The Division does not believe that the proposed amendments will have an impact on the achievement of smart growth or the implementation of the State Development and Redevelopment Plan.

Full text of the proposal follows (additions indicated in boldface thus; deletions indicated in brackets [thus]):

13:48-1.3 Definitions

The following words and terms, when used in this chapter, shall have the following meanings:

"Gross revenue" means the total amount of revenue, without deductions, of cash or other assets received including, but not limited to, all contributions, government grants, program service revenue, membership dues, performance fees, interest and dividends, pledges, rents, and other support. "Gross revenue" does not include items purchased by other entities for the use of the charitable organization where ownership of the item is retained by the original purchaser. For the purpose of determining if an audit is required, "gross revenue" does not include one-time bequests, fund raising campaigns for capital property in a single fiscal year or the value of services performed by volunteers and does include pledges when and to the extent recognized under the basis of accounting used by the organization.

13:48-2.1 Fee schedule

(a) The fees charged by the Division of Consumer Affairs for registration of charitable organizations (which shall be read to include, for the purposes of this subchapter, federated fund raising organizations), fund raising counsel, independent paid fund raisers, and solicitors, and for filing of contracts and other documents, shall be the following:

1. A charitable organization, [which is required under the Act to file a short form registration statement and which received gross contributions of not more than $ 10,000 during the most recently filed fiscal year of the organization shall not be required to pay] that is exempt from the registration requirements of the Act and pursuant to N.J.A.C. 13:48-3.3(a)7 may nevertheless register by filing a short form registration statement and paying an annual registration fee of $ 30.00. A late fee of $ 25.00 shall be incurred by any organization that elects to file a registration statement but fails to submit the complete annual registration filing within 30 days of the annual filing deadline.

2. A charitable organization [, which] that is required under the Act to file a short form registration statement [and which received gross contributions in excess of $ 10,000 during the most recently filed fiscal year of the organization,] shall pay an annual registration fee of $ 30.00 a year with the annual filing unless a filing extension was granted pursuant to N.J.A.C. 13:48-[3.1(c)]3.4. A late fee of $ 25.00 shall be incurred by any organization that fails to submit a complete annual registration filing along with the applicable annual registration fee within 30 days of the annual filing deadline.

3. A charitable organization [, which] that is required under the Act to file a long form registration statement and [which] that received gross contributions of not more than $ 100,000 during the most recently filed fiscal year of the organization, shall pay an annual registration fee of $ 60.00 a year with the annual filing unless a filing extension was granted pursuant to N.J.A.C. 13:48-[3.1(c)]3.4. A late fee of $ 25.00 shall be incurred by any organization that fails to submit a complete annual registration filing along with the applicable annual registration fee within 30 days of the annual filing deadline.

4. A charitable organization [, which] that is required under the Act to file a long form registration statement and [which] that received gross contributions of more than $ 100,000 but not more than $ 500,000 during the most recently filed fiscal year of the organization, shall pay an annual registration fee of $ 150.00 a year with the annual filing unless a filing extension was granted pursuant to N.J.A.C. 13:48-[3.1(c)]3.4. A late fee of $ 25.00 shall be incurred by any organization that fails to submit a complete annual registration filing along with the applicable annual registration fee within 30 days of the annual filing deadline.

5. A charitable organization [, which] that is required under the Act to file a long form registration statement and [which] that received gross contributions of more than $ 500,000 during the most recently filed fiscal year of the organization, shall pay an annual registration fee of $ 250.00 a year with the annual filing unless a filing extension was granted pursuant to N.J.A.C. 13:48-[3.1(c)]3.4. A late fee of $ 25.00 shall be incurred by any organization that fails to submit a complete annual registration filing along with the applicable annual registration fee within 30 days of the annual filing deadline.

6.-14. (No change.)

(b)-(d) (No change.)

13:48-3.1 Registration; registration number

(a)-(f) (No change.)

(g) Each registration number issued by the Attorney General remains the property of the State of New Jersey. If the registration of a charitable organization, fund raising counsel, independent paid fund raiser or solicitor lapses for failure to renew or is suspended or revoked, the former registrant shall immediately cease and desist from using the registration number.

13:48-3.3 Organizations exempt from registration

(a) The registration requirements of these rules shall not apply to:

1.-4. (No change.)

5. A library registered with the Secretary of State, provided that the annual financial report of that library shall be filed with the Secretary of State, where it shall be open for public inspection; [or]

6. A local unit registered by a parent organization in accordance with N.J.A.C. 13:48-6[.]; or

7. A charitable organization engaged in charitable fund raising that did not receive gross contributions in excess of $ 10,000 during its most recent fiscal year, if all of its functions, including fund raising activities, are carried on by persons who are not compensated for soliciting contributions. But a charitable organization not otherwise required to register under this paragraph that receives gross contributions in excess of $ 10,000 during a fiscal year whether or not the money is actually received during that fiscal year shall register with the Attorney General as required by N.J.A.C. 13:48-3.1 within 30 days after the date on which gross contributions exceed $ 10,000. A charitable organization that is exempt from the requirement to register pursuant to this paragraph may nevertheless elect to register by filing a short form registration statement.

(b) (No change.)

13:48-3.4 Extension of time for annual filing of the renewal statement and financial report

(a)-(g) (No change.)

(h) A charitable organization that is not required to file a registration statement, but elects to do so under N.J.A.C. 13:48-3.3(a)7, shall not be granted an extension of the time to file.

13:48-4.1 Short form registration

(a) Prior to operating or commencing solicitation activities in this State, the following charitable organizations, except those exempt from registration pursuant to N.J.A.C. 13:48-3.3, or those required to file a long form registration pursuant to N.J.A.C. 13:48-5, shall file a short form registration statement with the Attorney General:

1. Charitable organizations or organizations engaging in a charitable fund raising campaign [which do not] that receive gross contributions of at least $ 10,000, but not in excess of $ 25,000 during a fiscal year, if all of their fund raising activities are performed by volunteers, members, officers or persons who are not compensated for soliciting contributions. However, if gross contributions should exceed $ 25,000, whether or not the money is actually received by the charitable organization within the fiscal year, the organization shall, within 30 days of reaching that figure, notify the Division in writing that the organization will file a long form at the end of the next fiscal year, as required by N.J.A.C. 13:48-5;

2.-4. (No change.)

(b) Information required for the initial and renewal short form registration statement shall include the following:

1. The name and street address of the organization;

2. [A statement whether the organization has engaged an] The name of any independent paid fund raiser, fund raising counsel or commercial co-venturer the organization engaged during the most recent fiscal year;

3.-8. (No change.)

9. A statement whether the organization has ever been denied registration or had its registration revoked in this or any other jurisdiction along with a list of those jurisdictions; [and]

10. The name, street address and telephone number of each officer, director and trustee and each principal salaried executive staff employee and whether the person has been adjudged liable in an administrative or civil action, or convicted in a criminal action, involving theft, fraud or deceptive business practices. For the purposes of this paragraph:

i. A plea of guilty, non vult, nolo contendere or any similar disposition of alleged criminal activity shall be deemed a conviction;

ii. "Each principal salaried executive staff employee" shall be limited to no more than the five most highly compensated employees in the organization; and

iii. A judgment of liability in an administrative or civil action shall include, but not be limited to, any finding or admission that the officer, director, trustee or principal salaried executive staff employee engaged in an unlawful practice or practices related to the solicitation of contributions or the administration of charitable assets, regardless of whether that finding was made in the context of an injunction, a proceeding resulting in the denial, suspension or revocation of an organization's registration, consented to in an assurance of voluntary compliance or any similar order or legal agreement with any state or Federal agency;

11. A statement whether:

i. The organization is authorized by any other state to solicit contributions and, if so, a listing of the states in which authorization has been obtained;

ii. The organization is or has ever been enjoined in any jurisdiction from soliciting contributions or has been found to have engaged in unlawful practices in the solicitation of contributions or the administration of charitable assets together with a listing of all such jurisdictions;

iii. The organization's registration has been denied, suspended or revoked by any jurisdiction, together with a listing of those jurisdictions and the reasons for that denial, suspension or revocation; and

iv. The organization has voluntarily entered into an assurance of voluntary compliance agreement or any similar order or legal agreement with any jurisdiction or federal agency or officer together with an identification of the jurisdiction of federal agency or officer;

12. Photocopies of any and all written documentation (such as a court order, administrative order, judgment, formal notice, or written assurance) supporting an affirmative response to (b)10 and 11 above; and

[10.] 13. (No change in text.)

(c)-(f) (No change.)

13:48-5.1 Long form registration

(a) Prior to operating or commencing solicitation activities in this State a charitable organization, except those exempt from registration pursuant to N.J.A.C. 13:48-3.3 or those qualified to file a short form pursuant to N.J.A.C. 13:48-4, shall file a long form registration statement with the Attorney General.

(b) Information required for the initial and renewal long form registration statement shall include the following:

1.-2. (No change.)

3. The name, street address and telephone number of each officer, director and trustee and each principal salaried executive staff employee;

4. A statement whether any officer, director, trustee or principal salaried executive staff employee has been adjudged liable in an administrative or civil action involving theft, fraud, or deceptive business practices, or convicted in a criminal action, involving theft, fraud, or deceptive business practices. For purposes of this paragraph:

i. A plea of guilty, non vult, nolo contendere or any similar disposition of alleged criminal activity shall be deemed a conviction; [and]

ii. "Each principal salaried executive staff employee" shall be limited to no more than the five most highly compensated employees in the organization; and

iii. A judgment of liability in an administrative or civil action shall include, but not be limited to, any finding or admission that the officer, director, trustee or principal salaried executive staff employee engaged in an unlawful practice or practices related to the solicitation of contributions or the administration of charitable assets, regardless of whether that finding was made in the context of an injunction, a proceeding resulting in the denial, suspension or revocation of an organization's registration, consented to in an assurance of voluntary compliance or any similar order or legal agreement with any state or Federal agency;

5.-6. (No change.)

7. A statement disclosing whether, and giving pertinent information about, any of the organization's above listed officers, directors, trustees, or principal salaried executive staff employees [above are] who:

i. Are related by blood, marriage or adoption to each other or to any officers, agents, or employees of any fund raising counsel or independent paid fund raiser under contract to the organization[, or]; are related by blood, marriage or adoption to any chief executive employee[,]; to any other employee of the organization with a direct financial interest in the transaction[, or]; to any partner, proprietor, director, officer, or trustee of the organization[,]; or to any shareholder of the organization with more than a two percent interest [of] in any supplier or vendor providing goods or services to the organization and, if so, the name and business and home address and telephone number of each related party; or

ii. Have a financial interest in any activity engaged in by a fund raising counsel or independent paid fund raiser under contract to the organization or any supplier or vendor providing goods or services to the organization and, if so, the name and business address and telephone number of each interested party;

8. The amount of any grant or financial assistance from any agency of government in its preceding fiscal year; [and]

9. A statement setting forth the place where and the date when the organization was legally established and the form of the organization;

10. The principal street address and telephone number of the organization and the street address and telephone number of each office in this State, unless the organization does not maintain an office in this State, in which case the name and street address of the individual having custody of its financial records pertaining to operations or solicitations in this State shall be disclosed;

11. The name, street address and telephone number of each affiliate which shares in the contributions or other revenue raised in this State;

12. The date when the organization's fiscal year ends;

13. A statement whether:

i. The organization is authorized by any other state to solicit contributions and, if so, a listing of the states in which authorization has been obtained;

ii. The organization is or has ever been enjoined in any jurisdiction from soliciting contributions or has been found to have engaged in unlawful practices in the solicitation of contributions or the administration of charitable assets together with a listing of all such jurisdictions;

iii. The organization's registration has been denied, suspended or revoked by any jurisdiction, together with a listing of those jurisdictions and the reasons for that denial, suspension or revocation; and

iv. The organization has voluntarily entered into an assurance of voluntary compliance agreement or any similar order or legal agreement with any jurisdiction or federal agency or officer with an identification of the jurisdiction or federal agency or officer;

14. Whether the organization intends to solicit contributions from the general public;

15. Photocopies of any and all written documentation (such as a court order, administrative order, judgment, formal notice, or written assurance) supporting an affirmative response to (b)4 and 13ii, iii and iv above; and

[9.] 16. (No change in text.)

(c) (No change.)

(d) Upon initial registration only, every charitable organization required to file a long form registration shall include the following additional information which shall not be required upon renewal:

1. (No change.)

2. A statement setting forth [the place where and the date when the organization and its tax exempt status were legally established, the form of its organization,] the organization's tax exempt status along with copies of Federal or State tax exemption determination or exemption ruling letters;

[3. The address and telephone number of the organization and the address and telephone number of each office in this State. If the organization does not maintain an office in this State, the name, address and telephone number of the individual having custody of its financial records shall be disclosed;

4. The name, address and telephone number of each affiliate which shares in the contributions or other revenue raised in this State;

5. The date when the organization's fiscal year ends;

6. A statement whether:

i. The organization is authorized by any other state to solicit contributions, and if so, a listing of the states in which authorization has been obtained;

ii. The organization or any of its present officers, directors, executive personnel or trustees are or have ever been enjoined in any jurisdiction from soliciting contributions or have been found to have engaged in unlawful practices in the solicitation of contributions or the administration of charitable assets;

iii. The organization's registration has been denied, suspended or revoked by any jurisdiction, together with a listing of those jurisdictions and the reasons for that denial, suspension, or revocation; and

iv. The organization has voluntarily entered into an assurance or voluntary discontinuance or agreement with any jurisdiction or Federal agency or officer and a listing of those jurisdictions;]

[7.] 3. Photocopies of any and all written documentation (such as a court order, administrative order, judgment, formal notice, or written assurance) supporting an affirmative response to [(d)6ii, iii and iv] (b)4 and 13i, ii and iii above; and

[8.] 4. (No change in text.)

(e)-(f) (No change.)

13:48-5.3 Financial reports; audits

(a)-(b) (No change)

(c) The annual financial report of every charitable organization which received more than [$ 100,000] $ 250,000 in gross revenue during its most recently completed fiscal year shall be accompanied by [an audited] a financial statement prepared in accordance with generally accepted accounting principles [by an independent certified public accountant for the purpose of issuing an auditor's report thereon.] or other comprehensive basis of accounting principles consisting of the modified cash basis or regulatory basis which has been audited in accordance with generally accepted auditing standards by an independent certified public accountant licensed by the jurisdiction in which he or she practices and any management letters prepared by the auditor in connection with the audit commenting on the internal accounting controls or management practices of the organization.

(d) The annual financial reports of all charitable organizations which receive more than $ 25,000 but less than [$ 100,000] $ 250,000, shall be certified by the organization's president or other authorized officer of the organization's governing board. If the Attorney General requests an audit, the organization shall be notified in writing. In response, the organization shall, within 120 days of the Attorney General's notification, submit [an audited] a financial statement prepared in accordance with generally accepted accounting principles [by an independent certified public accountant] or other comprehensive basis of accounting principles consisting of the modified cash basis or regulatory basis which has been audited in accordance with generally accepted auditing standards by an independent certified public accountant licensed by the jurisdiction in which he or she practices and any management letters prepared by the auditor in connection with the audit commenting on the internal accounting controls or management practices of the organization.

(e)-(g) (No change.)



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