When Regulators Come Calling: 10 Common Nonprofit Red Flags (and How to Avoid Them)

Running a nonprofit means constantly balancing mission, money, and compliance. Most organizations never plan to attract attention from regulators, but certain patterns or missteps can send up red flags fast, especially when they suggest weak governance, poor financial controls, or misleading public messaging.

In Oregon, oversight comes primarily from the Department of Justice (DOJ) Charitable Activities Section. In Washington, it is the Office of the Secretary of State’s Charities Program, often working alongside the Attorney General’s Consumer Protection Division. While each state has its own reporting rules, the warning signs that trigger investigations are remarkably similar, and most of them are avoidable. This is not an exhaustive list.

10 Common Nonprofit Red Flags

1. Multiple Complaints
   Regulators tend to act when they hear from more than one person, especially insiders. In Oregon, the DOJ is more likely to investigate if multiple complaints come in alongside other red flags like late CT-12 filings or a revoked tax exemption. In Washington, the Charities Program and Attorney General track complaint patterns, looking for signs of misused funds, deceptive solicitations, or governance failures. Even one credible, detailed complaint can lead regulators to take a closer look, including a review of your public filings, website, or social media. Transparency and responsiveness are your best defense.

2. Late or Missing Reports
   Paperwork might not be glamorous, but regulators view chronic lateness as a governance issue. In Oregon, repeated delays in submitting the CT-12 raise concern, especially for nonprofits with larger budgets or state contracts. In Washington, missing annual renewal filings can lead to penalties or even temporary suspension. Think of filings like brushing your teeth: skip too many, and it leads to bigger problems down the road.

3. Failure to Register as a Charity
   In both states, registering with the right office before fundraising is a must. In Oregon, even if you have incorporated as a public benefit corporation, you still have to register as a charity with the DOJ if you are soliciting contributions. In Washington, most nonprofits must register with the Charities Program unless they are entirely volunteer-run and very small. Skipping registration before you start fundraising can create compliance issues that are easy to prevent with a little upfront planning.

4. Loss of Tax-Exempt Status or Corporate Standing
   Letting your IRS tax exemption lapse or failing to file your state annual report is like leaving the lights on in an empty house. Eventually, someone notices. In Oregon, regulators track nonprofits that lose exemption or stop filing altogether. In Washington, an expired corporate registration can lead to administrative dissolution, which also puts your charitable status at risk. These lapses do not just look sloppy. They signal instability to funders, partners, and regulators alike.

5. Misleading Fundraising Language
   Nonprofits get into trouble when their fundraising materials overpromise or mislead. In Oregon, that includes misrepresenting tax-exempt status or using language like “donate” or “volunteer” in ways that blur the line between nonprofit and for-profit efforts. In Washington, the Attorney General enforces solicitation laws that prohibit exaggerating how donations are used. A simple rule: if you would not say it to a donor’s face, do not print it on a postcard or post it online.

6. Conflicts of Interest
   Regulators do not just look for fraud, they look for blurred lines. In Oregon, the DOJ keeps a close eye on situations where board members do business with their own nonprofit, such as renting space, selling services, or paying themselves indirectly. Washington regulators take a similar stance, especially when these relationships are not fully disclosed or approved by disinterested board members. A written conflict-of-interest policy, signed annually and documented in board minutes, is your best evidence of good governance.

7. Negative Media Coverage
   Fair or not, bad press often leads to official scrutiny. If a news story highlights financial mismanagement, board infighting, or questionable use of funds, Oregon’s DOJ and Washington’s Attorney General usually notice. Even one-sided coverage can prompt an informal inquiry. You cannot always control the headlines, but you can control your response. Transparency, accountability, and timely communication go a long way.

8. Missing or Inaccessible Bylaws
   This one is deceptively simple. Every nonprofit in Oregon and Washington must have bylaws, and they must actually follow them. They do not need to be filed with the state, but they do need to exist and be available to directors or members if requested. Regulators sometimes ask for them when investigating governance issues. If your organization cannot find its bylaws or has not looked at them in years, it is time for a review. Think of them as your operating manual, not a relic at the bottom of a binder.

9. Weak or Missing Financial Oversight
   This is where most compliance problems begin. Nonprofits without internal controls such as independent board review of financials, or clear separation of duties, risk not only fraud but also investigation. In Oregon, the DOJ reviews audit findings for irregularities. In Washington, the Charities Program and Attorney General may step in if donor funds seem misused. Even if mistakes are unintentional, poor financial oversight suggests weak stewardship. Modern regulators are also watching for cybersecurity, data protection, and digital transparency. It is not just about the checkbook anymore. Financial oversight now includes safeguarding donor data and ensuring accounting systems are secure and traceable.

10. Poor Board Engagement and Governance
    This might be the single biggest red flag of all. Boards that rarely meet, fail to document decisions, or allow one person, often the founder, to control everything send up bright warning lights for regulators. In both Oregon and Washington, oversight agencies view disengaged boards as a breakdown of fiduciary duty. An active, informed, and curious board that asks tough questions, reviews financials, and understands its legal role is the best protection any nonprofit has against regulatory trouble.

Bonus: The New Compliance Landscape
2025 has brought more scrutiny to the nonprofit sector, especially around transparency, financial stability, and data security. Recent executive actions have pushed federal agencies to tighten oversight of grants, contracts, and charitable activity connected to public funds. Nonprofits working with government partners should pay close attention to new compliance clauses, reporting rules, and audit rights in their contracts. Funders and regulators alike now expect nonprofits to demonstrate stronger risk management, not just good intentions. That means reviewing insurance coverage, including D&O and cyber, conducting periodic governance check-ups, and updating conflict, whistleblower, and privacy policies.

The Bottom Line
Most state regulators start with a light touch, such as a phone call, an email, or a request for documents. But when organizations ignore those inquiries or show repeated gaps in governance, things escalate fast. Staying current on filings, keeping bylaws and financial policies accessible, tightening internal controls, and ensuring your board is both engaged and empowered are the best ways to avoid compliance headaches before they start.

If your organization could use a governance tune-up, a bylaws review, or a training for your board, Narwhal Law and Business Strategy helps nonprofits in Oregon and Washington keep their documents, policies, and leadership practices current, compliant, and mission-aligned. Contact us today!