State Regulators Grapple With Best Ways to Police Social-Media Appeals

As nonprofits increasingly turn to social-media and mobile tools to raise money, charity regulators are trying to figure out the smartest ways to protect donors from fraud.

The annual gathering of state regulators who monitor charities, held in Silver Spring, Md., this week, was dominated by concerns that the explosion of social networks has created an online fund-raising culture that is akin to the wild west.

The challenge, regulators say, is that the law and the courts haven’t kept up with all the changes, making it difficult for regulators to figure out which groups in their states are raising money online and how best to pursue organizations that defraud charities and donors.

Jeremy Sher, president of the Grassroots Giving Group, a Boston company that is developing an online-giving site, said he shares those concerns, even though regulations would mean more work for groups like his. He suggested borrowing a page from the federal government’s regulation of political fund-raising sites, to be sure they are abiding by campaign-finance rules.

“I’m up here as a pro-regulation entrepreneur,” Mr. Sher said to the state officials. “Give us guideposts. Tell us what to do.”

But creating those guideposts is not a simple process.

State regulators grappled with similar problems a decade ago when they drafted a model that state regulators could follow for online fund raising, known as the Charleston Principles because they were developed in the South Carolina city.

But that was long before Facebook, Twitter, and a growing array of sites such as Jumo, Crowdrise, and Causes made it easier for individuals to solicit money from friends and relatives.

The Charleston Principles simply outlined whether active charity Web sites needed to register to raise money online.

Social networks, however, raise money in different ways than charity-run Web sites. And regulators are trying to determine how to create meaningful guidelines or rules that take into account the diversity of new-media appeals. Such questions include:

• Whether measures are needed to govern how long a Web site that collects donations on behalf of charities can hold onto that money before they are required to turn it over.

• How to monitor the activities of “daily-deal” sites such as Groupon that work with charities to develop deals that encourage online shoppers to donate to nonprofits.

• How Web sites that charge fees for collecting donations should disclose those fees to potential donors.

Still, even as state regulators consider those questions, some nonprofit leaders worry that government officials will always be playing catch-up in a world in which technology is changing at breakneck speed.

“While you’re creating a solution for what’s out there now, others are already onto the next idea of how to raise money,” said Rachel Howell, a lawyer at the Nature Conservancy. “It seems like guidance is always one step behind the newest technology that comes along in fund raising.”