Light bulbs

Questionable Solicitation Language Draws Huge Fine from Michigan Attorney General

Yeo & Yeo CPAs & Business Consultants

The Michigan Attorney General’s office recently completed an investigation regarding concerns of allegedly deceptive language used in a nonprofit organization’s solicitation materials.

The main issue, in summary, was that the language used in the solicitation materials stated that a very high percentage “of all donations go directly to programs” for charitable purposes. The organization that was investigated receives a large amount of gifts-in-kind each year. These gifts, per Generally Accepted Accounting Principles, are required to be recorded on the financial statements as revenue with an offsetting expense. Therefore, due largely to the amount of gifts in kind that were recorded, the organization had a very high program expense ratio.

The issue raised by the Attorney General was that the phrase used in the solicitation materials (noted above) misrepresented the true program percentage of cash donations. Potential donors would reasonably expect that a very high percentage of their cash donation would be directly used for programs, when in reality the actual percentage was much lower. In other words, a potential donor’s cash donation would be used to fund significantly more fundraising and administrative costs than was represented by the statement in the solicitation materials. The Attorney General concluded that the statement was misleading.

Similarly, other language was questioned as well, such as making a statement that a certain dollar amount was able to provide a specific, significant benefit for charitable purposes. This was also deemed to be misleading since the donor would reasonably expect that their dollar would go directly to funding this benefit, but the organization did not restrict the donations received to procuring this benefit.

In the end a settlement was reached, which included fines in excess of a quarter million dollars. While the organization has maintained that there was no intention to deceive, this example illustrates the need to carefully choose the language used in solicitation materials. As nonprofit organizations prepare solicitation materials for the upcoming holiday season and beyond, Yeo & Yeo encourages those with in-kind donations to review the language used and ensure the appeal does not misrepresent the organization’s program expense ratio specific to cash donations, or the intended use of potential donations.

Please contact your Yeo & Yeo Principal or Nonprofit Services Group member if you would like assistance.




 

 

 

Yeo & Yeo CPAs & Business Consultants

Yeo & Yeo CPAs & Business Consultants

Yeo & Yeo CPAs & Business Consultants is a leading Michigan accounting firm. Since 1923, our industry-specialized Michigan accountants and consultants have provided clients with forward-thinking, comprehensive solutions in accounting, audit, tax, technology and business consulting.