1. Tracking and Reporting Fundraising Expenses - How Much Does it Cost to Get…?

2. What We Will Cover Overview of nonprofit expense reporting. Definition and makeup of fundraising costs. Indirect cost allocation methods and tips. Typical errors in cost allocation. Joint activities that include fundraising. Overview of SOP 98-2.

3. Functional Expenses The three categories of expense reporting for all nonprofit organizations: Program Management and General Fundraising

4. Program Expenses Costs of conducting activities for which the organization was created. Activities result in goods or services provided to beneficiaries, customers, clients or members. Exempt purpose activities.

5. Management and General Costs of activities, not specifically identifiable with a specific program or fund-raising activity (including membership development), but are necessary to organization’s conduct of those activities and its existence. Examples: accounting, general management and oversight, audit, budgeting, financing, communications with the public, human resources, insurance, occupancy, legal and risk management.

6. Fundraising Expenses Costs of inducing potential donors to contribute money, investments, services, other assets (for program use or fundraising activities), and time. Potential donors include individuals, corporations, foundations, governmental entities, United Way, or similar community organizations.

7. Fundraising Expenses (cont) Examples Costs of inducing potential donors to contribute money, securities, services, and time. Applying for and renewing grants. Fund-raising campaigns. Maintenance of donor or potential member mailing lists. Special events which result in general contributions. Fund-raising materials development and distribution. And….

8. Fundraising Expenses (cont) Any other costs incurred to solicit and collect contributions Direct and indirect –salaries and benefits, occupancy, postage, printing, consultants, telephone, accounting.

9. Development Costs Development Personnel-Program, M&G or Fundraising? –Management & General if personnel is seeking funding from other organizations (ex. government) that relieve those organizations of the burden of providing services to the public –This is an exchange transaction-exchange transactions are considered management and general expenses

10. Indirect Cost Allocation There is no one right way or required method. Reasonable. Consistent. Update for any changes. Document in a cost allocation plan.

11. Indirect Cost Allocation Methods Time study. Square footage. Actual usage (telephone allocated based on extensions, supplies/postage based on a study of their use, depreciation or rental of equipment based on asset usage…). % of direct costs.

12. Common Errors in Functional Expense Reporting Reporting no fundraising expense. Reporting all expense as program expense. Netting fundraising expenses against contributions. No allocation of personnel costs between categories. Allocating functional expense to keep management, general and fund-raising expense ratios low. Waiting until the end of the year to allocate costs for the audit!

13. Joint Activities Program activities and/or management and general activities conducted with fund-raising activities. Allocation of functional expense.

14. AICPA SOP 98-2 Accounting for Costs of Activities of Not-for-Profit Organizations and State and Local Governmental Entities That Include Fund-Raising

15. Joint Activities and SOP 98-2 Allocation of costs of a joint activity. Criteria of purpose, audience, and content. Allocation methods are neither forced nor disallowed. Requires note disclosures.

16. Three Basic Criteria Purpose Audience Content If any of the above criteria are not met, all costs of the activity should be reported as fund-raising costs.

17. The “Purpose” Criteria The purpose requirement is met if the purpose of the joint activity includes advancing the mission of the organization.

18. The “Purpose” Criteria Compensation Test: Compensation or fees are not based on total contributions raised. Similar Function Test: Similar activity is conducted separately on an equal or greater scale. Other Evidence –Calls for specific action by audience that will help accomplish the entity’s mission. –Measurable results.

19. The Audience Criteria SOP 98-2 includes a rebuttable presumption (deal breaker) The audience criterion is not met if: - the audience includes prior donors or - is otherwise selected based on its ability or likelihood to contribute to the entity.” Overcome if audience is selected for Program or M&G functions as well -Example: Recognition letters to prior donors asking for contributions

20. The Audience Criteria Audience has a need for or can reasonably use the specific action (program component). Audience is able to take the action called for.

21. The Content Criteria Identifiable need for and benefits of specific action by the recipient (program function). OR Supports a management and general function.

22. Cost Allocation for Joint Activities SOP 98-2 states: “The cost allocation methodology used should be rational and systematic, it should result in an allocation of joint costs that is reasonable, and it should be applied consistently given similar facts and circumstances.”

23. Audit Report Disclosures Types of activities for which joint costs have been incurred. Statement that such costs have been allocated. Total amount allocated and the portion allocated to each functional expense category.

24. Summary of Accounting for Joint Activities SOP 98-2 is overly complex. If any one of the three criteria is not met (the audience criteria, especially), it’s 100% fundraising. Make a reasonable effort to determine the allocation. Be consistent. Document your determination. See Attachment A-1 and A-2 for examples “The material contained in this presentation is for general information and should not be acted upon without prior professional consultation.”