Marcum LLP

Nonprofit - Audit


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Accounting for Fundraising Events - A Refresher


Spring is almost here, and most organizations are busy preparing for the fundraising season. Fund-raising events take many forms, such as concert events, galas, fashion shows, marathons, bowling and golf tournaments, just to name a few. These special events not only generate much-needed revenue for the organization but also raise awareness about the organization's mission.

Some organizations have these fundraising events annually; for others, these events are incidental to the organization's central activities and do not happen regularly. Either way, accounting for these fundraising events can be challenging at times.

The first question an organization needs to answer is whether these activities are integral or peripheral activities of the organization. Accounting standards require that revenue and expenses from a special event considered to be an integral and ongoing activity of an organization be reported at gross on the statement of activities. Reporting the net amount is acceptable only if the special event is an incidental activity.

The second question is how much of the receipts generated by the special event are actual contributions from the donors. For example, if an organization hosts an event with food and drinks that have a fair value of $60, but only cost the organization $30, and the donor pays $100 to attend, the portion of the receipt that is considered deductible as a charitable contribution is the amount in excess of the fair value of the goods or services received by the donor, or $40 in this example. Organizations are required to provide donors with documentation of the tax-deductible portion of the ticket price. It is also important to know that the cost to an organization is usually different from the fair value of the goods or services that the donors received. More often than not, the cost is lower than the fair value, as nonprofit organizations usually receive discounts from vendors. Therefore, organizations need to make a good faith estimate of the market value of the benefits received by the donor. In our example, the organization could use the price of a similar entree in nearby restaurants as fair value.

In some instances, an independent organization will hold a fundraising event to benefit another organization. The net amount transferred to the recipient organization is recorded as a contribution. However, if the independent organization deducts a fundraising fee or other compensation before remitting the net proceeds, then the fee should be recorded as a fundraising expense.

The third question is when to recognize the revenue from special events. One factor to consider is whether the contribution is conditioned upon the event taking place. If it is, then the recognition of revenue is deferred, and the receipt must be recognized as a liability or deferred revenue on the statement of financial position. However, the contribution may be recognized as revenue if the donor explicitly waives the requirement that the event takes place as a condition for the contribution.

The portion of the payment that is an exchange transaction is recognized after the fund-raising event takes place and the benefits are provided to the donors. If the event has not taken place by the end of the reporting period, the exchange portion of the payment is classified as a liability or deferred revenue in the statement of financial position. The cost of the direct benefit to donors attributable to the exchange transaction is reported separately from fundraising expenses, usually called cost of sales or cost of direct benefits to donors. However, if there is no charge to attend the fundraising event, the cost of the donor benefits is reported as fundraising expense unless the cost relates to the organization's program services. Other costs related to hosting the event, such as site and audio-visual rental, promotional materials, printing and event management, usually do not directly benefit the donor and are therefore considered to be fundraising expenses.

To return to our earlier example: A donor paid $100 to attend an event, and received food and drinks with a fair value of $60; the organization paid $30 for the food and drinks and incurred other event expenses of $20. How should this be presented on the statement of activities?

Organizations have three reporting options:
1. Presenting the costs of direct benefits to donors as a line item deducted from special event gross revenues

Special Events Revenue $100
Less: Cost of Direct Benefit to Donor -$30 $70
Fundraising Expenses -$20
Increase in Net Assets $50

2. Presenting special event gross revenues in the revenue section and costs of direct benefits to donors in the same section as other programs or supporting services (and allocating expenses among the various functions if necessary)

Special Events Revenue $100
Cost of Direct Benefit to Donor -$30
Fundraising expenses -$20
Total Expenses -$50
Increse in Net Assets $50

3. Presenting the contribution and exchange portions of the gross revenues separately, with the costs of direct benefits to donors deducted from the exchange portion of the gross revenue

Contributions $40
Special Events Revenue $60
Cost of Direct Benefit to Donor $30 $30
Total Revenue $70
Fundraising Expenses -$20
Increase in Net Assets $50

If you are in charge of a nonprofit organization's fundraising events, it is important to work with your finance and accounting team, as they can provide valuable insights to make sure the organization is in compliance with state and local charitable solicitation laws. Some cities and states require registration as a condition for charitable solicitation within their jurisdictions and may impose significant penalties on an organization that fails to register for a solicitation license first.




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