Accounting for Non-Profits: Fundraising
Nonprofit organizations receive many different types of revenue. Some nonprofits are government funded, while others receive funds from donors and foundations. Most nonprofit organizations conduct fundraising events to raise money for operations or for certain programs. Often nonprofits have annual fundraising events such as mailing campaigns,marathons, golf events, dinners, galas, and other events to raise funds for general use. Proceeds and expenses associated with these types of events are booked in the unrestricted/general fund. If the fundraising event is for a specific program or for something to happen in the following year, then money from the event is restricted.
Usually big fundraising events raise money for unrestricted use. This money raised is reported separately in the Statement of Activities in the unrestricted fund column. It’s also reported separate on the 990. Many times donors get something for their donation. This is known as a “quid pro quo” and may be a dinner or auctioned items. Someone makes a donation and gets something in return, such as the value of food, entertainment, or items bought at an auction, etc. This is also called “exchange value.”
Donors’ receipts must specify how much of a donation is a “real” donation, and how much is not. Donors may be able to deduct only the donation part of the gift. If a person gives $200 for a dinner fundraiser, and the ticket says “Value of the meal: $50,” then donor can deduct only $150 in his taxes, not the entire amount. In an auction, if something is valued at $1,000 and a donor gives $1,500 for it, the difference of $500 is the real donation.
When a donor makes a donation of $1,000 (or other amount) for a dinner fundraiser and doesn’t show up for whatever reason, he or she can deduct the entire amount. Beware that organizations are not supposed to determine the real deductibility of an item, which can change by person and circumstances.The IRS offers workshops to nonprofits about this topic. It also has a site just for nonprofit organizations at http://www.irs.gov/charities/index.html
Many times organizations combine fundraising activities with programs or with management and general administration. When that happens, a reasonable allocation of expenses may be used. Why? Because GAAP and an additional financial report, Schedule of Functional Expenses, require this allocation. (All expenses need to be allocated to the three major areas-- general/management, programs, and fundraising.) Special events are shown separately in the Statement of Activities (Income Statement of nonprofits). If the event is not that important, revenues and "Direct donor benefit costs" can be shown as net. “Direct donor benefits costs” are direct expenses associated with the event.
The line for direct donor costs could also be reported as part of expenses. Another option for reporting major events is to use the exchange value and to divide the income between contributions and special event revenues (see quid-pro-quo discussion earlier). The fair market value is shown as special event revenue; the rest is shown as regular contribution.
This article is an excerpt from Sheila Shanker's course Non-Profits Operations and Accounting.
by Sue Anderson - Based on 30 years of experience in continuing education for accountants. Currently program director for online CPE provider, CPE Link. Formerly with the California CPA Education Foundation managing key operational areas including marketing, program development, and distance learning.