Accounting for Costs of Activities (of Not-for-Profit Organizations) That Include Fund Raising
by Duane Reyhl

Step-by-Step Guide to applying the standard

The essence of this standard?
Effective date and applicability
What is a fund-raising activity?
What is a joint activity?
What are joint costs?
What are program activities?
What are management and general activities?
In summary

The essence of this standard?

Not-for-profit organizations often conduct activities that simultaneously serve more than one organizational objectives, hence the name "joint activities." Fund-raising is a frequent component of a joint activity. This is important because unless three tests are met, all costs associated with the joint activity are charged to fund-raising--even if some of those costs are bona fide program costs. The accounting challenge is to determine whether the organization meets the tests in order to be able allocate part of the joint costs to the other, non-fund-raising components. This article briefly summarizes the essence of the accounting standard, including some definitions, in order to help you focus an otherwise blurry line.

We have also prepared a Test for Allocation of Costs to Joint Activities: A Step-by-Step Guide as a tool to help you through the specific questions you need to answer in order to determine whether you can allocate costs of joint activities that include fund-raising.

If an activity meets the three specific criteria of purpose, audience and content (the tests are applied in that order), then the organization should record the costs of the joint activities in the following manner. Costs that can be identified with a particular function should be charged to that function. Joint costs should be allocated between fund-raising and the appropriate program activities or management and general activities. If any of the three criteria are not met, then all of the costs of the joint activity should be charged to fund-raising. This includes costs that would be considered program or management and general costs had they been incurred in a different activity. The exception to this rule is that costs of goods or services provided in exchange transactions that are part of joint activities should not be reported as fund-raising costs.

The standard does not specify the method that should be used for allocating costs other than the method should be rational and systematic. In addition, the method should be applied consistently under similar facts and circumstances.

Authoritative reference:	AICPA Statement of Position (SOP) 98-2
Effective date:	Financial statements for years beginning on or after December 15, 1998 (therefore, would apply to all 1999 calendar year financial statements.)
Applies to:	All nongovernmental not-for-profit organizations (NPOs) and all state and local governmental entities that solicit contributions.

 

A fund-raising activity is an activity undertaken to induce potential donors to contribute money, securities, services, materials, facilities, other assets, or time. Examples include publicizing and conducting fund-raising campaigns, maintaining donor lists, conducting fund-raising events, preparing or distributing fund-raising materials.

A joint activity is an activity that is part of a fund-raising function and has elements of one or more other functions, such as program, management and general, membership development, or other functional category used by the organization.

Joint costs are costs incurred when conducting joint activities that are not identifiable with a particular component of the activity. Examples include costs of salaries, contract labor, consultants, professional fees, paper, printing, supplies, postage, event advertising, telephone, airtime, and facility rentals.

Program activities are those functions of the organization that relate to the organization’s tax-exempt purpose. In other words, activities that result in the distribution of goods or services to beneficiaries, customers or members in accordance with the purposes and mission for which the organization exists.

Management and general activities are those functions not identifiable with a single program, fund-raising activity, or membership-development activity, but are otherwise indispensable to the conduct of those activities and to an organization’s existence. Examples include oversight, business management, general recordkeeping, budgeting, financing, soliciting revenue form exchange transactions, and all management and administration except for the direct conduct of programs or fund-raising activities.

Assessing whether you can allocate costs of joint activities that include fund-raising involves judgment. If you have accumulated support for your position, you may be in a better position that if the support is not available. If you have any questions about this standard please, contact Duane Reyhl or any of our other professionals for they assistance.

Take the Test for Allocation of Costs to Joint Activities: A Step-by-Step Guide.