State regulation of nonprofit organizations: Accountability regardless of outcome

Although recent calls for increased accountability of the nonprofit sector imply that the role of state regulatory agencies should expand, the costs of expanded regulation to the nonprofit sector-and indirectly to the general public and charitable beneficiaries-are significant, and should not be ignored. This article examines the motivations that state regulators have in promulgating registration and reporting requirements for nonprofit organizations and professional fund-raisers. Examination of six states with no annual requirements for nonprofit organizations or professional fund-raiser registration and financial reporting revealed no obvious accountability pathologies such as unusually high fraudulent activity or abnormally low donations to nonprofit organizations. Because nonprofit accountability in states without annual registration appears as robust as that in other states, the author proposes removal of state regulations requiring nonprofit annual registration and financial reporting. At the very least, the author urges caution in the face of increasing calls for more stringent state regulation of nonprofit organizations.