There are a variety of fundraising activities that nonprofit organizations employ to solicit contributions.  These fundraising activities may include such things as direct mail, telephone solicitation, door-to-door canvassing, telethons, etc., and may include components that would otherwise be associated with programmatic or supporting service activities, but in fact support fundraising activities.

The Financial Accounting Standards Board’s Accounting Standards Codification (FASB ASC) 958-720 “Accounting for Costs of Activities that Include Fundraising” (link: establishes financial accounting standards for accounting for costs related to joint activities and the required financial statement disclosures. This standard includes three criteria that are to be used to determine whether or not an activity qualifies as a joint activity and management of the nonprofit organization must be able to demonstrate that these criteria (purpose, audience, and content) are met in order to qualify as a joint activity.  The cost of the joint activity defaults to fundraising expense if all three criteria are not met, even if the costs are otherwise identifiable as program costs.  These three criteria are defined below:

The purpose of the activity must be to carry out a program and/or management purpose.  The organization should examine tangible evidence of intent (e.g., agreements, policies or other written guidance) to ensure that: (1) the organization intended to engage the audience in a call to action to help accomplish the organization’s mission, and (2) the majority of compensation of any party performing any part of the joint activity is not based on the contributions raised.

The audience should be appropriate with respect to the action being requested. If the target audience includes prior donors, or is otherwise selected based on its ability or likelihood to contribute, a presumption exists that the audience criterion is not met. This presumption can be overcome if it can be shown that the audience was selected because it has a reasonable potential to use the call to action or it has the ability to carry out the call to action.

For the content criteria to be met, the joint activity must support programs or management functions.  The content criterion often overlaps to some extent with the purpose criterion. However, the purpose criterion focuses on intention, while the content criterion looks at execution. This criterion can also be met if the joint activity fulfills one or more of the organization’s management and general responsibilities.

For the criteria of purpose and content, the activity must include a “call to action” on the part of the recipient, other than just making a contribution. This call to action is required in order to permit the organization to allocate the costs of the joint activity.  Nonprofit organizations should find creative and meaningful ways to engage their audience and get people involved through a call to actions since many organizations are competing for the same resources.  This is an area where many nonprofit organizations fail.

A methodology should be established for allocating costs for joint activities once it has been determined that the criteria discussed above have been met.

The accounting for joint activities impacts an organization’s expense ratio between program, management and general, and fundraising. These percentages are monitored by many stakeholders.  Regulators, watchdogs, and others acting in the interest of donors and the general public are concerned that organizations use the expense allocation of joint activities to overstate the program portion of their activity, thus misleading donors and the general public into believing that the organization is providing more program services to recipients than they really are.

Nonprofit organizations must apply a systematic and rational allocation methodology for the allocation of joint costs as documented in ASC 958-720.  Although there are several possible allocation methodologies, the most frequently used allocation methodology is the physical units methodology. Each joint activity engaged in must be separately analyzed. It is not appropriate to use a general estimated percentage based on past analysis, estimates, or some other unverifiable method of allocation.

An organization must be careful that their analysis of program activities is not overstated.   An organization should make sure that they have accounted for the total cost of all joint activities, and should ensure they include all cost components of the joint activity, such as envelopes, letters, an action insert, a premium item (e.g., greeting cards, address labels, etc.), and a business reply envelope.

Once established, the process should be used by an organization to analyze whether a joint activity meets all the criteria and if so, the cost allocation performed should result in a reasonable allocation and be applied consistently.

*This article originally appeared in BDO USA, LLP’s “Nonprofit Standard Issue 32 (September 2011)“. Written by Lee Klumpp, BDO CPA. Copyright © 2011 BDO USA, LLP. All rights reserved.