Reporting Fundraising Costs: the Basics

How charities must break down expenses:

• Program services

• Management and general

• Fundraising

When charities can count fundraising activities as program or management expenses:

• They design the activity to get people to take action to promote the charity’s mission.

• They choose recipients because of their ability to take, or benefit from, that action.

• They explain the purpose of the action and how it will help the charity achieve its goals.

Sample activities that are part fundraising and part program expenses:

• A drug-abuse-prevention charity sends materials to parents of junior-high students encouraging them to counsel their children about drugs and learn how to detect abuse. The mailing includes a request for contributions.

• A nonprofit that works to improve the lives of older people mails two brochures about the importance of exercise to residents over age 65. One of the brochures includes a perforated form that explains the group’s programs and asks for donations.

When they can’t split the costs:

• People involved in the activity are compensated mostly on commission.

• The charity selects recipients because they’re previous donors or likely donors.

Sample activities that must be counted as fundraising:

• A health charity sends a fundraising appeal to previous donors that includes a message about how to prevent a disease. When it compiles its mailing list, it deletes the names of people who have not contributed recently.

• A charity provides aid to children in developing countries and advertises its programs on television. It appeals for contributions but doesn’t ask for other specific action.

How charities can allot the expenses:

• Measure the number of lines or the amount of space in a direct-mail appeal that describes the call to action.

• Allocate the percentage of money spent on fundraising activities versus program activities.

Related: Watchdog Cracks Down on Misleading Statements on Fundraising Costs

Source: Statement of Position 98-2, “Accounting for Costs of Activities of Not-for-Profit Organizations and State and Local Governmental Entities That Include Fundraising,” American Institute of CPAs.