Compliance Requirements for Charity Auctions: The Basics

An auction may raise money and motivate participants more effectively than any other form of fundraising. A well-planned event strategy, a lot of marketing and the perfect assortment of auction items are all required for a successful auction. 

Nevertheless, do you know the necessary compliance requirements for these events if you’re organising fundraising? Whilst less eye-catching than the main event you’re arranging, you need to consider the importance of compliance to your event’s success. If you fail to do so, you might risk violating some rules and regulations based on the legalities laid upon.

This article provides an overview of the compliance requirements governing charity auctions and insights into how these requirements may impact your organisation if you plan to hold an auction to raise money for your charity.

What Is Charity Auction Compliance?

A compliance requirement is a rule or law governing an organisation’s business activities. Compliance requirements are usually set by government entities, such as the Federal Trade Commission (FTC) in the United States and the Australian Charities and Not-for-profit Commission (ACNC) in Australia and state or local governments.

Compliance requirements are often designed to protect both consumers and charities from fraud. The ACNC sets guidelines, advice and information to help charity fundraising comply with their obligation and help the public understand the ongoings of the not-for-profit sector. As a result, the public is informed, guided and protected with their rights once they participate in non-profit entities.

These regulatory institutions also created rules to protect consumers from excessive fees and other unscrupulous conduct by charities. Compliance requirements may also exist to protect charities, such as rules prohibiting deceptive advertising and fundraising ideas or requiring charities to disclose information about collected funds.

The Basics of Charity Auctions

Auctioning goods, whether in the form of a car, artwork or donated items, is a well-established way to raise money for charity. Some charities also host regular charity auctions to generate revenue. 

Many people support charitable organisations by bidding on items at a charity auction. These charitable auctions can be a great source of funding for nonprofit organisations and other charities, but they can also pose risks if they’re not managed properly. 

To conduct a compliant charity auction,

  • You’ll need to be sure that the terms of the sale are clear to bidders.
  • You’ll also want to ensure the amount charged for each item meets state and federal requirements. For example, you may need to set more for an item if it’s being sold to cover the costs associated with it, such as the cost of storing the item or a service fee associated with the auction.

Furthermore, determine whether your organisation must register with the appropriate state regulator. Registration may be required to conduct business in the state, such as conducting auctions open to residents of that state. If necessary, you should also consult the state’s requirements for running a compliant charity auction

How to Conduct a Compliance Review for Auctions

In this review, a member of your organisation’s legal team audits the charity auction’s compliance. Legal auditors should be thoroughly familiar with the laws that apply to auctions and the business operations of the auction organisation.

The audit includes a review of the following key areas of the auction: 

  • Organisation—The charity itself, its registered agent and any other agents involved in the auction. The audit should include a review of the charity’s articles of incorporation, bylaws and other legal documents that affect the organisation.
  • Auction—How the charity owns the items being auctioned. The audit should include reviewing the auction’s terms and conditions, including any rules about whether the organisation may hold the items being auctioned.
  • Bidding—How bidders pay for items. The audit should include reviewing the bidding process, including any rules about how bids are submitted and the amount of time allowed for each bid.
  • Payment—The audit should include reviewing how bidders are charged, including the amount charged and the payment method.

Finally, the audit should include an assessment of the overall risk associated with the event, such as whether the charity auction will likely be a financial success. Audits can help you determine where to improve your organisation’s operations. 

Other Things to Consider for Your Charity Auction

Charity auctions are indeed a popular fundraising mechanism for non-profit organisations. Other things to remember if you plan to conduct one are:

The number of items sold at the auction is typically limited to $5,000 or less. All proceeds must be donated to charity. And all charitable auctioneers must register with the state and submit annual financial reports.

These compliance requirements ensure that the items sold at charity auctions are of fair value and accurately priced. They also help ensure that any taxes on the proceeds go to the correct organisation.

Helping Hand Group Auction Services: Lending You a Helping Hand

Charity auctions are a legitimate way for organisations to raise money for their causes. Whilst these auctions must comply with federal and state consumer protection laws, it’s important to remember that these regulations are designed to protect consumers from fraud. Conducting a compliance review for your charity auction ensures that the event abides by all applicable consumer protection laws.

So, the next time you’re set to conduct your charity auction, you can count on us. Here at the Helping Hand Group, we have an expert team that can make your charity fundraising a hit. From pre-event planning to post-event review, we have got your back.

Contact us today to learn more about our services.