Charitable assets are not private assets. They are held for charitable purposes, subject to fiduciary duties, donor restrictions, state charitable trust laws, and public accountability. Misuse of charitable assets is one of the fastest ways to destroy a nonprofit.
That principle sounds simple. But a recent string of enforcement actions shows that regulators are seeing the same problems again and again: insiders treating nonprofit funds as personal funds, weak boards failing to exercise oversight, restricted assets being redirected without legal authority, and online fundraising platforms creating confusion about who is actually soliciting and receiving donations.
NASCO’s recent “Latest News” items provide a useful snapshot of where charity enforcement is headed. The cases involve alleged theft, lavish personal spending, false invoices, sham charities, donor deception, misuse of disaster-relief funds, and attempts to preserve charitable assets for their original purposes.
State Attorneys General Are Focused on Misuse of Charitable Assets
Several of the recent matters involve the most straightforward form of charitable asset misuse: insiders allegedly taking or redirecting nonprofit funds for personal benefit. In Minnesota, Attorney General Keith Ellison sued We Push for Peace and two former leaders, alleging misuse of more than $6.5 million in nonprofit assets, governance and oversight violations, false statements to the Attorney General’s Office, and conduct that allegedly contributed to the demise of the nonprofit. Minnesota also brought an action against Les Jolies School of Dance, Real Believers Faith Center, their founders, and other officers, alleging misuse of more than $2 million in charitable assets to fund lavish lifestyles, luxury travel, and designer goods while the organizations claimed to be serving their communities.
Colorado announced a settlement with a former nonprofit executive director accused of fraudulently obtaining nearly $100,000 by submitting false tuition invoices while soliciting charitable donations. Oregon sued a charity leader for allegedly stealing nearly $837,000 intended for disaster victims and using funds for gambling, strip clubs, travel, and personal bills. Ohio sued an alleged sham animal rescue nonprofit accused of diverting donations to support a for-profit puppy-selling business.
These cases are not subtle. They involve the kinds of facts that make regulators, donors, journalists, and the public ask: Where was the board?
Governance Failures Are Often the Real Story
In many charitable asset cases, the headline is theft or diversion. But the deeper legal problem is governance failure.
Regulators are increasingly looking beyond the person who allegedly misused funds. They are asking whether the organization had functioning oversight. Did the board meet? Did it review financial statements? Did anyone approve expenses? Were related-party transactions documented? Were donor restrictions tracked? Did the organization have basic internal controls?
This is consistent with NASCO’s broader focus on governance, restricted funds, solicitation compliance, registration enforcement, dissolutions, transactions, outreach, and legislation, as reflected in your recent discussion of NASCO’s annual reporting themes.
The legal duties of nonprofit directors are not ceremonial. Directors have fiduciary duties of care, loyalty, and obedience. Those duties require active oversight of the organization’s charitable assets and mission. A board that rubber-stamps founder decisions, never reviews bank records, or allows one person to control all funds is inviting trouble.
Restricted Charitable Assets Cannot Simply Be Repurposed
Not all misuse cases involve personal spending. Some involve charitable assets that were raised, donated, or held for a specific purpose.
Ohio Attorney General Dave Yost’s lawsuit involving Hebrew Union College is an example. The state sued to ensure charitable assets remain dedicated to supporting a permanent rabbinical school in Cincinnati, alleging that the institution accepted donations based on a long-standing promise and then decided to close the Cincinnati rabbinical school.
This kind of case is a reminder that donor restrictions and charitable purposes matter. If funds were given for a particular program, location, facility, scholarship, religious purpose, or community, the organization may not have unilateral authority to redirect those assets. Depending on state law and the governing documents, court approval or attorney general involvement may be required.
Boards should be especially careful before closing a program, selling charitable property, merging organizations, transferring assets, or abandoning a long-standing restricted purpose.
Online Fundraising Is Becoming an Enforcement Priority
The Alaska Attorney General’s lawsuits against several crowdfunding and charitable-giving platforms point to another important trend: regulators are watching online solicitation practices. The Alaska actions allege that platforms created donation pages for charities without their knowledge or consent and solicited donations through those pages using publicly available nonprofit data.
This is a modern charitable solicitation problem. Donors often assume that when they click a button bearing a charity’s name, the charity authorized the page, controls the message, and will promptly receive the funds. That may not always be true. Nonprofits should periodically search for unauthorized fundraising pages using their names, monitor third-party platform listings, and understand how platforms describe fees, timing, donor information, and the charity’s role.
The IRS and Treasury Are Moving Toward More Transparency
State charity regulators are not the only ones focused on transparency. Treasury recently announced plans for a Form 990 transparency initiative intended to improve reporting on government contracts, government grants, and fiscal sponsorship arrangements, with the stated goal of strengthening oversight and detecting misconduct.
That fits the broader trend. Regulators want better visibility into how exempt organizations receive, hold, transfer, and spend charitable funds. This is especially important for organizations involved in fiscal sponsorship, government-funded programming, pass-through grantmaking, disaster relief, donor-advised funding structures, and complex affiliate arrangements.
As we have said before, the Form 990 is not just a tax return. It is a public accountability document. The IRS, state regulators, donors, journalists, watchdogs, and opposing parties may all read it.
What Nonprofits Should Do Now
The lesson from these cases is not that nonprofits should be afraid to operate. The lesson is that boards must take stewardship seriously.
At a minimum, nonprofits should:
- Separate personal and charitable funds. No founder, officer, employee, director, pastor, or volunteer should use the nonprofit as a personal checkbook.
- Adopt basic internal controls. Require dual review of expenditures, separation of duties, documented approvals, and regular bank reconciliations.
- Review credit card and reimbursement practices. Personal expenses should not be charged to the organization, even temporarily.
- Track restricted funds. Donor-restricted funds, grant funds, government funds, and board-designated funds should be separately tracked and used only for authorized purposes.
- Document related-party transactions. Conflicts of interest should be disclosed, reviewed by disinterested directors, and recorded in minutes.
- Provide meaningful financial reports to the board. Directors cannot fulfill their duties if they do not receive accurate and timely financial information.
- Monitor online fundraising. Charities should know who is raising money in their name and what representations are being made to donors.
- Take complaints seriously. Whistleblower reports, donor concerns, unexplained financial irregularities, and staff complaints should be investigated promptly.
- Seek legal advice before redirecting restricted assets. If a charitable purpose has become impractical, impossible, or obsolete, there may be a legal process for modifying restrictions. Ignoring the restriction is not the process.
The Bottom Line
The current enforcement trend is clear. Charity regulators are paying close attention to the misuse of charitable assets, weak governance, restricted fund problems, online donor deception, and insider abuse.
For nonprofit boards, this is a reminder that fiduciary duties are real. Charitable assets must be protected, used for charitable purposes, and administered with transparency and care. Good intentions are not enough. A compelling mission does not excuse poor controls. And when charitable funds are misused, regulators are increasingly willing to intervene.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on federal tax and fundraising regulations nationwide. Ellis also advises donors concerning major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form. This post is for general informational purposes and does not constitute legal advice.