Preproposal statement of inquiry was filed as WSR 98-08-012 on March 18, 1998.

Title of Rule: Licensing requirements for nonprofit and commercial entities, WAC 230-04-064, 230-08-122, 230-08-255, 230-12-060, and 230-30-052.

Purpose: Rule changes will enable the agency to further streamline the licensing process; increase agency's ability to monitor activities of manufacturers, financiers, and management companies; clarify reporting requirements; allow agency to recover additional fees incurred in the conduct of high level investigations; increase agency's ability to assess the accounting of funds raised by nonprofit organizations.

Statutory Authority for Adoption: RCW 9.46.070.

Summary: See Purpose above.

Reasons Supporting Proposal: Streamline licensing requirements for nonprofit and commercial entities.

Name of Agency Personnel Responsible for Drafting: Soojin Kim, Lacey, (360) 438-7654 ext. 310; Implementation: Ben Bishop, Lacey, (360) 438-7640; and Enforcement: Carrie Tellefson, Lacey, (360) 438-7636.

Name of Proponent: Staff, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: See Purpose above.

Proposal Changes the Following Existing Rules: See Purpose above.

No small business economic impact statement has been prepared under chapter 19.85 RCW. Proposal is exempt under RCW 19.85.025(2); therefore, a small business economic impact statement is not required.

Section 201, chapter 403, Laws of 1995, does not apply to this rule adoption. This agency does not choose to make section 201, chapter 403, Laws of 1995, apply to this rule adoption.

Hearing Location: Maple Hall Convention Center, 104 Commercial Street, La Conner, WA 98257, (360) 466-3101, on June 12, 1998, at 9:30 a.m.

Assistance for Persons with Disabilities: Contact Susan Green by June 1, 1998, TDD (360) 438-7638, or (360) 438-7654, ext. 302.

Submit Written Comments to: Soojin Kim, Mailstop 42400, Olympia, WA, 98504-2400, FAX (360) 438-8652 by May 31, 1998.

Date of Intended Adoption: June 12, 1998.

August [April] 26, 1997 [1998]

Soojin Kim

Rules and Policy Coordinator

AMENDATORY SECTION (Amending WSR 96-07-075, filed 3/19/96, effective 7/1/96)

WAC 230-04-064  Certification procedure--All licenses--Formal commission approval. The commission shall review and make a determination regarding the qualification of all persons or organizations requesting to operate gambling activities authorized by chapter 9.46 RCW. The following review procedures apply to applicants for a license:

(1) Charitable and nonprofit organizations - To ensure that only bona fide charitable or nonprofit organizations are granted the privilege of raising funds from authorized gambling activities, the commission shall annually review the qualifications of each organization requesting a license to conduct such activities. As a part of this process, each organization shall clearly demonstrate that progress has been made in meeting its purpose(s) by submitting required information and answering such inquiries as deemed necessary by commission staff. The certification process shall be completed as follows:

(a) All organizations requesting to be certified to conduct any gambling activities in Group I, II, or III shall be reviewed by commission staff and forwarded to the commission for review and approval at a public meeting: Provided, That for any organization requesting to be certified to conduct gambling activities in Group III, the director may direct the staff to prepare a summary of qualifications, as required by subsection (1)(b) of this section, and provide such to the commission for review;

(b) Any organization requesting to be certified to conduct gambling activities in Group IV or V shall be reviewed by commission staff and a summary of the organization's qualifications shall be prepared and provided to the commission for review and approval. At least one representative from the organization shall be present at the public meeting at which the summary of their qualification is presented;

(c) In addition, any organization requesting approval or an upgrade to conduct gambling activities in Group V shall be scheduled for formal review as a condition of licensure and periodically thereafter as determined by the director or the commission. The formal review shall be at a scheduled open meeting of the commission and, when possible, held in the general area which encompasses the organization's service area. The review will cover the organization's most recent annual financial report as required by WAC 230-08-122. If an organization desires to submit additional information, it must be submitted at least twenty days prior to the date of its scheduled review. The organization must be represented by at least three members of its board of directors, its chief executive officer, and the primary gambling manager. The organization may solicit testimony from clients, local social and welfare providing agencies, public agencies, and other charitable or nonprofit organizations. The commission may solicit information from the public or any other interested parties and shall notify local law enforcement agencies of the time and location of the review. The formal review will include a brief session for the organization to inform the commission on the progress made during its previous fiscal year in achieving its purposes, including the extent to which gambling income was used for charitable as opposed to nonprofit services and planned uses for any gambling income remaining from the previous fiscal year;

(d) At the conclusion of the review of qualifications for a charitable or nonprofit organization, the commission will approve the organization requested or:

(i) Require the organization to submit additional information;

(ii) Return the application to the staff for further investigation; or

(iii) ((Call for a special review; or

(iv))) Grant a temporary or conditional license;

(2) Commercial, individual and all other applicants - After the staff has completed its review of an application, a recommendation shall be made to the commission. The commission shall review each application at a public meeting. Each applicant found to be qualified will be issued the license requested. If the commission does not approve the application, it shall be returned to commission staff for further investigation;

(3) If an organization is currently licensed and the commission does not approve the application, the application shall be returned to commission staff for further investigation. A temporary or conditional license will be issued pending completion of the review process.

[Statutory Authority: RCW 9.46.070 (1), (8-11), (14), (16) and (20). 96-07-075, § 230-04-064, filed 3/19/96, effective 7/1/96. Statutory Authority: RCW 9.46.070 (7), (8), (9), (10), (14), (19) and (20). 89-09-047 (Order 190), § 230-04-064, filed 4/18/89, effective 7/1/89.]

AMENDATORY SECTION (Amending WSR 96-07-075, filed 3/19/96, effective 7/1/96)

WAC 230-08-122  Annual progress and financial report--All nonprofit and charitable organizations. Each charitable or nonprofit organization licensed to conduct gambling activities shall report annually the progress made toward accomplishment of its stated purposes. This report shall be made on a standard form provided by the commission and explain the type and scope of activities that were conducted during the organization's last annual fiscal accounting period. If any applicant has provided such information on an application within the preceding twelve months, only those items that have changed must be reported. This report shall include at least the following information:

(1) A brief history of the organization, including its purpose(s): Provided, That only changes in the purposes and organizational structure need to be reported after the initial application;

(2) A written statement setting out the progress made in meeting its organizational purpose(s) during the period and its goals for the future;

(3) Number of membership meetings conducted;

(4) Number of active members, as defined by WAC 230-02-183;

(5) Number of voting members;

(6) The nature, type, or kind of programs provided to members or the public;

(7) The scope of the organization's programs, including:

(a) Number of persons served;

(b) The primary geographical service area; and

(c) Number of volunteer workers and estimation of hours worked;

(8) A list of contributions, scholarships, grants, or sponsorships made during the period. The list must include the following:

(a) The name of each organization or individual receiving a contribution. In the alternative, if a contribution was made to an individual for charitable purposes, the term "individual contribution" may be used instead of the individual's name. If individual names are omitted, the organization must maintain necessary records to verify and identify the recipient for each individual contribution;

(b) The amount(s);

(c) Date(s) made; and

(d) Whether funds awarded were from gambling income or other funds;

(9) Gross income from all nongambling activities, including the source;

(10) Total expenses for both charitable and nonprofit services;

(11) The percentage or extent to which net gambling income was used for charitable as distinguished from nonprofit purposes;

(12) Revenue and expenses for any nongambling sales activities must be presented separately when conducted primarily in conjunction with gambling activities;

(13) Details of any loans, contracts, or other business transactions with related parties that accumulatively exceed one thousand dollars during the period. "Related parties" is defined as officers, board members, key employees, or members of the organization, including spouses, parents, children, and brothers or sisters of each;

(14) The names, duties performed, total hours worked, and total compensation paid for the following employees:

(a) All employees paid more than forty thousand dollars annually;

(b) Part-time employees paid more than twenty dollars per hour; and

(c) All officers receiving compensation for services rendered;

(15) In addition to information required in subsection (1) of this section, any organization licensed to conduct gambling activities in Group III, IV, or V must submit complete financial statements prepared in accordance with generally accepted accounting principles and all required disclosures or footnotes. Any organization licensed to conduct gambling activities in Groups IV and V must submit financial statements prepared by a licensed certified public accountant. This information must be submitted no later than one hundred twenty days following the end of the organization's fiscal year. The financial statements must include:

(a) A statement of financial position;

(b) A statement of activities. This statement may be presented in a consolidated form if details of each component are provided as supplemental information. Revenue and expenses for each activity must be presented separately as follows:

(i) Each gambling activity;

(ii) Retail sales conducted in conjunction with gambling activities;

(c) A statement of cash flows;

(d) A statement of functional expenses;

(e) In addition to all disclosures required by generally accepted accounting principles, the financial statements must disclose the following:

(i) Loans to or from officers, board members, and employees: Provided, That employee salary advances of five hundred dollars or less will not be considered as loans. Details of all terms, including interest rates and payment schedules, must be disclosed;

(ii) All civil penalties, fines, bribes, or embezzlements incurred or discovered during the period; and

(iii) An explanation of any adjustments made to prior period capital accounts or net asset balances;

(f) An explanation of material differences between amounts reported on gambling activity reports and the financial statements;

(16) The commission may require additional information to ensure completeness of the information reported including selected information covering the period from the end of the fiscal year reported and the license renewal date;

(17) The commission may grant an organization additional time to submit the information required if a written request is received prior to the due date. Any request for additional time shall be signed by the president, include a statement setting out the hardship necessitating the delay, and the expected date the required report(s) will be submitted;

(18) The commission may request any organization licensed to conduct gambling activities in Group II to submit financial statements and other information required by this rule in order to evaluate the organization's qualification.

[Statutory Authority: RCW 9.46.070 (1), (8-11), (14), (16), (20). 96-07-075, § 230-08-122, filed 3/19/96, effective 7/1/96. Statutory Authority: RCW 9.46.070 (7), (8), (9), (10), (14), (19) and (20). 89-09-047 (Order 190), § 230-08-122, filed 4/18/89, effective 7/1/89.]

AMENDATORY SECTION (Amending WSR 96-07-075, filed 3/19/96, effective 7/1/96)

WAC 230-08-255  Bona fide charitable or nonprofit organizations--Significant progress. Any charitable or nonprofit organization requesting to be certified to conduct gambling activities must demonstrate it has made significant progress toward meeting its stated purpose(s) during the period under review. "Significant progress" means an organization has complied with requirements set forth in its bylaws and articles of incorporation; has actively engaged in providing services to the public or its members during the entire period under consideration; and the services provided directly relate to the stated purposes of the organization. Such activities will be deemed significant when an organization utilizes a substantial portion of the resources it has available, including net gambling income, for providing services. Provided that: Any organization requesting to be certified to operate gambling activities in Group III, IV, or V, as defined in WAC 230-12-076, shall demonstrate it has made "significant progress" by meeting the following additional requirements:

(1) Elections to select officers were held at least once in the previous two years;

(2) A general membership meeting to conduct the business of the organization was held at least once in the previous two years;

(3) At least sixty percent of the net gambling income earned in the organization's most recently completed fiscal accounting year was utilized in the same period as functional expenses to provide services to members or the public. The following procedures apply for purposes of determining compliance with this subsection:

(a) Fees paid by members or the public to receive services or to participate in specific activities shall be classified as a reduction to ((expenses for providing such services)) both program service expenses and supporting service expenses on a pro rata share and as income to the extent fees paid exceed the cost of providing such services;

(b) The amount of net gambling income used to provide services in the year under review shall be determined by the following procedure:

(i) Compute the amount of net gambling income that must be used for services by multiplying net gambling income for the period by sixty percent or six tenths (0.6);

(ii) Compute the ratio of net gambling income when compared to total net revenue from all sources for the period by dividing net gambling income by total net revenue from all sources;

(iii) Compute the amount of net gambling income that was used for services by multiplying total expenses of providing services for the period by the result of the computation in (b)(ii) of this subsection; and

(iv) Total expenses of providing program services must be equal to or greater than the results of the computation in (b)(iii) of this subsection ((must be equal to or greater than the results of the computation in (b)(i) of this subsection;

(c) An organization may be exempted from this subsection for a limited time if it:

(i) Has a formal plan to utilize an amount that is equal to or greater than sixty percent of the net gambling income earned in the current period to provide services in the next fiscal accounting period and the plan is submitted to the commission as a part of its annual progress and financial report required by WAC 230-08-122. Such services shall be in addition to those required for the next period; or

(ii) Is reserving funds to start or expand specific programs. If funds are being reserved to start or expand specific programs, the organization must expend at least twenty-five percent of net gambling income for providing services in the current fiscal accounting period;)).

(4) It does not expend more than thirty-five percent of functional expenses for supporting service expenses. If more than fifty percent of ((functional)) program expenses are provided through indirect methods such as contributions, scholarships, and/or sponsorships, ((services,)) then not more than twenty percent of functional expenses shall be spent for supporting services;

(5) An organization may be exempted from or held to a lower standard than the requirements set forth in subsection (3) or (4) of this section by the director if:

(a) It demonstrates circumstances, which requires it to delay providing services to members or the public or to accumulate funds in the current period, such as it:

(i) Has a formal plan to utilize an amount that is equal to or greater than sixty percent of the net gambling income earned in the current period to provide services in the next fiscal accounting period. Such services shall be in addition to those required in the next period;

(ii) Is reserving funds to start or expand specific programs. If funds are being reserved under authority of this subsection, the organization must expend at least twenty-five percent of net gambling income for providing services in the current fiscal accounting period;

(iii) Utilizes a substantial amount of capital assets that are not subject to depreciation or amortization to provide program services, such as fully depreciated or amortized assets or assets that are not normally depreciated such as land used for athletic fields, riding areas, parks, etc.; or

(iv) Conducts a substantial portion of program services through use of volunteers; and

(b) The organization submits details of the circumstances resulting in the lack of funds spent on services and its plans for use of the reserved funds to the commission as a part of its annual progress and financial report required by WAC 230-08-122.

(6) Compliance with the requirements of this section shall be prima facie evidence that an organization has made significant progress towards accomplishing its stated purposes.

[Statutory Authority: RCW 9.46.070 (1), (8-11), (14), (16), (20). 96-07-075, § 230-08-255, filed 3/19/96, effective 7/1/96. Statutory Authority: RCW 9.46.070, 9.46.0261 and 9.46.0209. 94-01-035, § 230-08-255, filed 12/6/93, effective 1/6/94.]

REPEALER

The following section of the Washington Administrative Code is repealed:

WAC 230-12-060 Charitable or nonprofit--Bingo--Special review.

AMENDATORY SECTION (Amending WSR 90-10-007, filed 4/19/90, effective 7/1/90)

WAC 230-30-052  Punchboards and pull tabs operated by charitable or nonprofit organizations--Net income required. Charitable or nonprofit organizations operating punchboards and pull tabs and which do not operate bingo games at any level shall not pay excessive expenses. To ensure that licensees meet the intent of RCW 9.46.010 and to prevent the payment of excessive expenses, net income, as a percentage of gross gambling receipts from punchboards and pull tabs, shall not be less than ((the limits set out in subsections (1) and (2) below)) zero when measured over the annual license period((.)): Provided, That the limits set out in Table 1. of WAC ((230-20-064)) 230-20-059 shall apply to organizations operating punchboards and pull tabs in conjunction with a bingo game. ((Net income limits:

(1) Class A and B licensees - Net income of at least 5.5%, before deduction of local taxes; and

(2) Class C and above licensees - Net income of at least 7.0%, before deduction of local taxes.))

[Statutory Authority: RCW 9.46.070 (1)(16). 90-10-007, § 230-30-052, filed 4/19/90, effective 7/1/90.]