Report Title:

Relating to Solicitation of Funds for Charitable Purposes.

Description:

Clarifies provisions regarding professional solicitors and professional fundraising counsel who contract with charitable organizations to conduct fundraising campaigns. Transfers responsibility for the oversight of such persons from DCCA to the AG which has general oversight over charitable trusts and charitable organizations.

HOUSE OF REPRESENTATIVES

H.B. NO.

2364

TWENTY-SECOND LEGISLATURE, 2004

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO SOLICITATION OF FUNDS FOR CHARITABLE PURPOSES.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. Chapter 467B, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"467B- Reports to attorney general. (a) Within ninety days after a solicitation campaign or event has been completed and on the anniversary of the commencement of a solicitation campaign lasting more than one year, a professional solicitor shall file with the attorney general a financial report for the campaign, including gross revenue and an itemization of all expenses incurred.  This report shall be signed and sworn to by the authorized contracting agent for the professional solicitor and two authorized officials of the charitable organization.  A professional solicitor shall maintain during each solicitation campaign and for not less than three years after the completion of such campaign the following records, which shall be available for inspection upon demand by the attorney general:

(1) The date and amount of each contribution received and the name and address of each contributor;

(2) The name and residence of each employee, agent, or other person involved in the solicitation;

(3) Records of all revenue received and expenses incurred in the course of the solicitation campaign; and

(4) The location and account number of each bank or other financial institution account in which the professional solicitor has deposited revenue from the solicitation campaign.

(b) If the professional solicitor sells tickets to an event and represents that tickets will be donated for use by another, the professional solicitor shall maintain, for not less than three years after the completion of such event, the following records, which shall be available for inspection upon demand by the attorney general:

(1) The number of tickets purchased and donated by each contributor; and

(2) The name and address of all organizations receiving donated tickets for use by others, including the number of tickets received by each organization.

(c) Each contribution in the control or custody of the professional solicitor shall, in its entirety and within five days of its receipt, be deposited in an account at a bank or other federally insured financial institution, which shall be in the name of the charitable organization. The charitable organization shall maintain and administer the account and shall have sole control of all withdrawals.

(d) Any material change in any information filed with the attorney general pursuant to this section shall be reported in writing by the professional solicitor to the attorney general not more than seven days after the change occurs.

(e) No person may act as a professional solicitor if the person, any officer, any person with a controlling interest therein, or any person the professional solicitor employs, engages, or procures to solicit for compensation, has been convicted by a court of any state or the United States of any felony, or of any misdemeanor involving dishonesty or arising from the conduct of a solicitation for a charitable organization or purpose."

SECTION 2. Chapter 467B, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"467B- Administrative enforcement and penalties. (a) The attorney general may refuse to register or revoke or suspend the registration of any charitable organization, professional fundraising counsel, or professional solicitor whenever the attorney general finds that a charitable organization, professional fundraising counsel, or professional solicitor, or an agent, servant, or employee thereof:

(1) Has violated or is operating in violation of any of the provisions of this chapter, the rules of the attorney general, or an order issued by the director;

(2) Has refused or failed or any of its principal officers has refused or failed, after notice, to produce any records of the organization or to disclose any information required to be disclosed under this chapter or the rules of the attorney general; or

(3) Has made a material false statement in an application, statement, or report required to be filed under this chapter.

(b) When the attorney general finds that the registration of any person may be refused, suspended, or revoked under the terms of subsection (a), the attorney general may:

(1) Revoke a grant of exemption to any of the provisions of this chapter;

(2) Issue an order directing that the person cease and desist specified fundraising activities;

(3) Impose an administrative fine not to exceed $1,000 for each act or omission that constitutes a violation of this chapter and an additional penalty, not to exceed $100 for each day during which the violation continues. Registration will be automatically suspended upon final affirmation of an administrative fine until the fine is paid or until the normal expiration date of the registration.  No registration shall be renewed until the fine is paid; or

(4) Place the registrant on probation for such period of time and subject to such conditions as the attorney general may decide.

(c) All actions of the attorney general shall be taken subject to the right of notice, hearing, and adjudication and the right of appeal therefrom in accordance with chapter 91."

SECTION 3. Chapter 467B, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"467B- Solicitation of funds for charitable purposes special fund. There is established in the state treasury the solicitation of funds for charitable purposes special fund into which shall be deposited all fees, fines, penalties, attorneys' fees, and costs of investigation collected under this chapter. Moneys in the fund may be expended by the attorney general for the enforcement of this chapter, the dissemination of public information, and the oversight of charities and professional fundraisers."

SECTION 4. Chapter 467B, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"467B-_ Written contracts; filing with attorney general. (a) There shall be a written contract between a charitable organization and a professional fundraising counsel or professional solicitor that shall be filed by the professional fundraising counsel or professional solicitor with the attorney general at least ten workdays prior to the performance by the professional fundraising counsel or professional solicitor of any service. No solicitation or services pursuant to the contract shall begin before the contract is filed with the attorney general. The contract must be signed by two authorized officials of the charitable organization, one of whom must be a member of the organization's governing body, and the authorized contracting officer for the professional fundraising counsel or professional solicitor. The contract shall contain all of the following provisions:

(1) The legal name and address of the charitable organization;

(2) A statement of the charitable purpose for which the solicitation campaign is being conducted;

(3) A statement of the respective obligations of the professional fundraising counsel or professional solicitor and the charitable organization;

(4) A statement of the guaranteed minimum percentage of the gross receipts from contributions that will be remitted to or retained by the charitable organization, if any, or, if the solicitation involves the sale of goods, services, or tickets to a fundraising event, the percentage of the purchase price that will be remitted to the charitable organization, if any.  Any stated percentage shall exclude any amount that the charitable organization is to pay as fundraising costs;

(5) A statement of the percentage of the gross revenue that the professional fundraising counsel or professional solicitor will be compensated. The stated percentage shall include any amount that the professional fundraising counsel or professional solicitor is to be reimbursed as payment for fundraising costs. If the compensation of the professional fundraising counsel or professional solicitor is not contingent upon the number of contributions or the amount of revenue received, the compensation shall be expressed as a reasonable estimate of the percentage of the gross revenue, and the contract shall clearly disclose the assumptions upon which the estimate is based. The stated assumptions shall be based upon all of the relevant facts known to the professional fundraising counsel or professional solicitor regarding the solicitation to be conducted by the professional fundraising counsel or professional solicitor;

(6) The effective and termination dates of the contract or, if the contract does not have a set termination date, the contract shall contain a clause allowing either party a reasonable period to terminate the contract or notify the other party if either party chooses not to renew. The contract shall also contain the date services will commence with respect to solicitation in this State of contributions for a charitable organization;

(7) A statement that the professional fundraising counsel or professional solicitor will not at any time have custody or control of contributions;

(8) A statement that the charitable organization exercises control and approval over the content and volume of any solicitation; and

(9) Any other information required by the rules of the attorney general.

(b) No professional fundraising counsel or professional solicitor shall contract with a charitable organization unless such professional fundraising counsel or professional solicitor is registered with the department. A contract with an unregistered professional fundraising counsel or professional solicitor shall be voidable at the option of the charitable organization.

(c) Whenever a charitable organization contracts with a professional fundraising counsel or professional solicitor, the charitable organization shall have the right to cancel the contract without cost, penalty, or liability for a period of ten days following the date on which that contract is executed. Any provision in the contract that is intended to waive this right of cancellation shall be void and unenforceable.

(d) A charitable organization may cancel a contract pursuant to subsection (c) by serving a written notice of cancellation on the professional fundraising counsel or professional solicitor.  If mailed, service shall be by certified mail, return receipt requested, and cancellation shall be deemed effective upon receipt by the professional fundraising counsel or professional solicitor. The notice shall be sufficient if it indicates that the charitable organization does not intend to be bound by the contract.

(e) Any funds collected after effective notice that a contract has been canceled shall be deemed to be held in trust for the benefit of the charitable organization without deduction for cost or expenses of any nature. A charitable organization shall be entitled to recover all funds collected after the date of cancellation."

SECTION 5. Section 36-27, Hawaii Revised Statutes, is amended to read as follows:

"36-27 Transfers from special funds for central service expenses. Except as provided in this section, and notwithstanding any other law to the contrary, from time to time, the director of finance, for the purpose of defraying the prorated estimate of central service expenses of government in relation to all special funds, except the:

(1) Special out-of-school time instructional program fund under section 302A-1310;

(2) School cafeteria special funds of the department of education;

(3) Special funds of the University of Hawaii;

(4) State educational facilities improvement special fund;

(5) Convention center enterprise special fund under section 201B-8;

(6) Special funds established by section 206E-6;

(7) Housing loan program revenue bond special fund;

(8) Housing project bond special fund;

(9) Aloha Tower fund created by section 206J-17;

(10) Funds of the employees' retirement system created by section 88-109;

(11) Unemployment compensation fund established under section 383-121;

(12) Hawaii hurricane relief fund established under chapter 431P;

(13) Hawaii health systems corporation special funds;

(14) Tourism special fund established under section 201B-11;

(15) Universal service fund established under chapter 269;

(16) Integrated tax information management systems special fund under section 231-3.2;

(17) Emergency and budget reserve fund under section 328L-3;

(18) Public schools special fees and charges fund under section 302A-1130(f);

(19) Sport fish special fund under section 187A-9.5;

(20) Neurotrauma special fund under section 321H4;

(21) Deposit beverage container deposit special fund under section 342G-104;

(22) Glass advance disposal fee special fund established by section 342G-82; [and]

(23) Center for nursing special fund under section 304D-5; and

(24) Solicitation of funds for charitable purposes special fund established by section 467B- ,

shall deduct five per cent of all receipts of all other special funds, which deduction shall be transferred to the general fund of the State and become general realizations of the State. All officers of the State and other persons having power to allocate or disburse any special funds shall cooperate with the director in effecting these transfers. To determine the proper revenue base upon which the central service assessment is to be calculated, the director shall adopt rules pursuant to chapter 91 for the purpose of suspending or limiting the application of the central service assessment of any fund. No later than twenty days prior to the convening of each regular session of the legislature, the director shall report all central service assessments made during the preceding fiscal year."

SECTION 6. Section 467B-1, Hawaii Revised Statutes, is amended as follows:

(1) By adding new definitions to be appropriately inserted and to read as follows:

  ""Fundraising costs" means those costs incurred in inducing others to make contributions to a charitable organization for which the contributors will receive no direct economic benefit. Fundraising costs normally include, but are not limited to, salaries, rent, acquiring and maintaining mailing lists, printing, mailing, and all direct and indirect costs of soliciting, as well as the cost of unsolicited merchandise sent to encourage contributions.  Fundraising costs do not include the direct cost of merchandise or goods sold or the direct cost of fundraising dinners, bazaars, shows, circuses, banquets, dinners, theater parties, or any other form of benefit performances.

"Owner" means any person who has a direct or indirect interest in any professional fundraising counsel or professional solicitor."

(2) By amending the definition of "department" to read as follows:

""Department" means the department of [commerce and consumer affairs of the State.] the attorney general."

(3) By repealing the definition of "director".

[""Director" means the director of commerce and consumer affairs of the State."]

SECTION 7. Section 467B-3, Hawaii Revised Statutes, is amended to read as follows:

"467B-3 Reciprocal agreements. The [director] attorney general may enter into a reciprocal agreement with the appropriate authority of another state for the purpose of exchanging information with respect to charitable organizations, professional [fund-raising] fundraising counsel, and professional solicitors."

SECTION 8. Section 467B-5, Hawaii Revised Statutes, is amended to read as follows:

"467B-5 Records to be kept. Every charitable organization, professional [fund-raising] fundraising counsel, and professional solicitor subject to this chapter shall keep true and accurate records as to its activities in a form that will accurately provide support for the information required by this chapter. Upon demand, the records shall be made available to the [director] attorney general for inspection. The records shall be retained for a period of not less than five years."

SECTION 9. Section 467B-5.5, Hawaii Revised Statutes, is amended to read as follows:

"[[]467B-5.5[]] Commercial co-venturer's charitable sales promotions. (a) All charitable sales promotions by a commercial co-venturer shall disclose the name of the commercial co-venturer.

(b) Prior to the commencement of any charitable sales promotion in this State conducted by a commercial co-venturer using the name of a charitable organization, the commercial co- venturer shall obtain the written consent of the charitable organization whose name will be used during the charitable sales promotion.

(c) A final accounting for each charitable sales promotion shall be prepared by the commercial co-venturer following the completion of the promotion. A copy of the final accounting shall be provided to the [director] attorney general not more than twenty days after the copy is requested by the [director.] attorney general. A copy of the final accounting shall be provided to the charitable organization not more than twenty days after the copy is requested by the charitable organization. The final accounting shall be kept by the commercial co-venturer for a period of three years, unless the commercial co-venturer and the charitable organization mutually agree that the accounting should be kept by the charitable organization instead of the commercial co-venturer."

SECTION 10. Section 467B-8, Hawaii Revised Statutes, is amended to read as follows:

"467B-8 Information filed to become public records. Statements, reports, professional fund-raising fundraising counsel contracts or professional solicitor contracts, and all other documents and information required to be filed under this chapter or by the [director] attorney general shall become government records in the department and be open to the general public for inspection at such times and under such conditions as the [director] attorney general may prescribe."

SECTION 11. Section 467B-9, Hawaii Revised Statutes, is amended as follows:

(1) By amending subsection (b) to read as follows:

"(b) No charitable organization, professional solicitor, or professional [fund-raising] fundraising counsel soliciting contributions shall use a name, symbol, or statement so closely related or similar to that used by another charitable organization or governmental agency that the use thereof would tend to confuse or mislead the public."

(2) By amending subsection (e) to read as follows:

"(e) No charitable organization, professional [fund-raising] fundraising counsel, or professional solicitor subject to this chapter shall use or exploit the fact of filing any statement, report, professional [fund-raising] fundraising counsel contracts, or professional solicitor contracts or other documents or information required to be filed under this chapter or with the department so as to lead the public to believe that the filing in any manner constitutes an endorsement or approval by the State of the purposes or goals for the solicitation by the charitable organization, professional [fund-raising] fundraising counsel, or professional solicitor; provided that the use of the following statement shall not be deemed a prohibited exploitation: "Information regarding this organization has been filed with the State of Hawaii department of [commerce and consumer affairs.] the attorney general. Filing does not imply endorsement or approval of the organization or the public solicitation for contributions.""

(3) By amending subsections (g) and (h) to read as follows:

"(g) No person shall submit for filing on behalf of any charitable organization, professional [fund-raising] fundraising counsel, or professional solicitor, any statement, financial statement, report, attachment, or other information to be filed with the department that contains information, statements, or omissions that are false or misleading.

(h) No person shall solicit contributions from persons in the State or otherwise operate in the State as a charitable organization, an exempt charitable organization, professional [fund-raising] fundraising counsel, professional solicitor, or commercial co-venturer unless the person has filed the information required by this chapter with the department in a timely manner."

(4) By amending subsection (j) to read as follows:

"(j) No person shall fail to file the information and statements required by this chapter or fail to provide any information demanded by the [director] attorney general pursuant to this chapter in a timely manner."

SECTION 12. Section 467B-9.5, Hawaii Revised Statutes, is amended to read as follows:

"467B-9.5 Financial statements. Whenever the [director] attorney general has reasonable grounds to believe that any charitable organization, professional [fund-raising] fundraising counsel, or professional solicitor has engaged in any act or practice constituting a violation of this chapter or any rule or order adopted or issued, the [director] attorney general may require the charitable organization, professional [fund-raising] fundraising counsel, or professional solicitor to submit to the department [a] an_audited financial statement prepared in accordance with generally accepted accounting principles by an independent certified public accountant, or as otherwise required by the [director.] attorney general."

SECTION 13. Section 467B-12, Hawaii Revised Statutes, is amended to read as follows:

"[[]467B-9.6[]] Enforcement. (a) If any charitable organization, professional [fund-raising] fundraising counsel, or professional solicitor fails to file any statement, report, or other information required to be filed under this chapter, the [director] attorney general may demand that the charitable organization, the professional [fund-raising] fundraising counsel, or the professional solicitor provide the statement, report, or other information not more than twenty days after demanded by the [director.] attorney general. This demand may be mailed to the address on file with the department.

(b) Whenever the [director] attorney general has reason to believe that any charitable organization, professional [fund-raising] fundraising counsel, professional solicitor, or other person is operating in violation of this chapter, the [director] attorney general may investigate and bring an action in any court of this State to enjoin the charitable organization, professional [fund-raising] fundraising counsel, professional solicitor, or other person from continuing the violation or doing any acts in furtherance thereof, and for any other relief that the court deems appropriate.

[(c) The director may exercise the authority granted by this section against any charitable organization that operates under the guise or pretense of being an organization exempted by section 467B-11, and is not an organization entitled to an exemption.]"

SECTION 14. Section 467B-12, Hawaii Revised Statutes, is amended to read as follows:

"467B-12 Filing requirements for professional [fund-raising] fundraising counsel and professional solicitors. (a) Every professional [fund-raising] fundraising counsel or professional solicitor, prior to any solicitation, shall file a registration statement with the department. The statement shall be in writing under oath or affirmation in the form prescribed by the [director] attorney general and shall contain the information as the [director] attorney general may require. The registration statement by a professional [fund-raising] fundraising counsel or professional solicitor shall be accompanied by a fee in the amount of [$50,] $250, or in the amount and with any additional sums as may be prescribed by the [director.] attorney general. The statement shall list the names, addresses, and social security numbers of all officers, agents, servants, employees, directors, and independent contractors of a professional [fund-raising] fundraising counsel, and the names, addresses, and social security numbers of all officers, agents, servants, employees, directors, and independent contractors of a professional solicitor. Renewal statements shall be filed with the department on or before July 1 of each calendar year in which the professional [fund-raising] fundraising counsel or professional solicitor does business in or from the State and shall be effective until June 30 of the next calendar year. The renewal statement shall be in a form prescribed by the [director.] attorney general. A renewal fee of [$50,] $250, or in any amount and with any additional sums as may be prescribed by the [director,] attorney general, shall accompany the renewal statement.

(b) The professional [fund-raising] fundraising counsel or professional solicitor, at the time of each filing, shall file with and have approved by the [director] attorney general a bond in which the applicant is the principal obligor in the penal sum of [$5,000] $25,000 issued with good and sufficient surety or sureties approved by the [director] attorney general and which shall remain in effect for one year. The bond shall inure to the benefit of the State, conditioned that the applicant, its officers, directors, employees, agents, servants, and independent contractors shall not violate this chapter. A partnership or corporation that is a professional [fund-raising] fundraising counsel or professional solicitor may file a consolidated bond on behalf of all its members, officers, and employees.

(c) The [charitable organization may void any agreement or contract for compensation or reimbursement with a professional solicitor or professional fund-raising counsel for that person's failure to comply with this section before or while soliciting persons on behalf of the charitable organization. If the charitable organization voids the agreement or contract, moneys collected by the professional solicitor or professional fund- raising counsel shall be paid to the charitable organization, to be held in trust on behalf of those donors who request a refund. The charitable organization shall make best efforts to notify donors of their option of receiving a refund. All moneys not claimed by the donors shall be the sole property of the charitable organization.] attorney general shall examine each registration statement and supporting documents filed by a professional fundraising counsel or professional solicitor and shall determine whether the registration requirements are satisfied. If the attorney general determines that the registration requirements are not satisfied, the attorney general must notify the professional fundraising counsel or professional solicitor in writing within fifteen workdays of its receipt of its registration statement; otherwise the registration statement is deemed to be approved. Within seven workdays after receipt of a notification that the registration requirements are not satisfied, the professional fundraising counsel or professional solicitor may request a hearing."

SECTION 15. Section 467B-6, Hawaii Revised Statutes, is repealed.

["467B-6 Filing of agreements. (a) Every contract between a professional fund-raising counsel and a charitable organization that provides for a percentage compensation shall be filed with the department within ten days after the contract is signed by the charitable organization.

(b) Every contract between a professional solicitor and a charitable organization that provides for a percentage compensation shall be filed with the department not more than ten days after the contract is signed by the charitable organization. The contract shall disclose the percentage distribution between the parties to the contract of all funds to be raised or received as a result of the agreed upon solicitation activity.

(c) The charitable organization, and the professional solicitor or professional fund-raising counsel shall ensure that all the percentage-based contracts to which they are parties are on file with the department.

(d) On July 1, 1995 and on July 1 of each year thereafter, the charitable organization, and the professional fund-raising counsel or professional solicitor who are or were parties to contracts that provide for percentage compensation, shall file with the department a financial report for each percentage compensation contract pursuant to which solicitations were conducted in or from this State during the preceding twelve-month period. The financial report shall cover the preceding twelve-month period and state, for each contract, the name and address of each party, the gross receipts and revenues collected, and all expenses or payments relating to the contract that were incurred or paid to or by any party. This report shall be co-signed by all parties to the contract. The director may prescribe the form and content of the financial report as the director may deem appropriate. The director may prescribe procedures to allow extensions of time to file the financial report required by this subsection for a period not to exceed six months.

(e) All contracts between professional fund-raising counsel or professional solicitors, and charitable organizations shall be in writing. For the purposes of this section, the term "contract" includes all contracts, agreements, or arrangements between professional fund-raising counsel or professional solicitors, and charitable organizations."]

SECTION 16. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 17. This Act shall take effect on July 1, 2005.

INTRODUCED BY:

_____________________________

BY REQUEST