Wednesday, December 20, 2006

ALLOCATING YOUR FUNDRAISING COSTS PROPERLY - DON'T BE A SOP

You've heard of SOP-98-2 right?  

SOP is acronym for "Statement of Position". Today we're talking about SOP-98-2 or "Accounting for Costs of Activities of Not-for-Profit Organizations...that include Fund-Raising."

SOP-98-2 has been effective since December 15, 1998 and applies to all fundraising activities of NPO's and to state and local government entities although most nonprofit managers haven't heard of it, we've been subject to this rule for over a decade.

"Accountability" "Misleading the Public" "How much of your donation goes to the cause". These topics have receive a lot of media play. Your donors want to know "if I make a one dollar donation, how much will go the cause?  Typically the answer is 75 to 85%. Most folks would be okay with knowing that 80 cents of your buck go to the cause, yes. But what about the cost of fundraising?

If you use a professional fundraiser, it's possible that instead of 80/20, it might be 20/80. If professional fundraisers use full disclosure to the donor they might even be within the confines of the law (laymans speculative opinion). But who would give 20 cents out of every dollar to a cause?

The answer: maybe your nonprofit. Nonprofits are expert at disguising the real costs of fundraising as "general administrative". The blur between job duties opens that door. In a small nonprofit, everybody might be pulling double-duty.

If we consider the real cost, maybe professional fundraisers are just more honest. I myself like the idea of sitting back, doing no work whatsoever and picking up a check from the profession guys. No midnight hours blowing up balloons, no garning silent auction gifts that rarely (if ever) pull the kind of bid they deserve, no more print "ad books" that may or may not even pay the cost of the printer.

Then there is the self-disception that comes after. How many times have I heard "Our fundraiser is so incredibly successful, we raised $1 million dollars!" only to find out that they were talking gross, not net! How much did you spend on the event? I ask. On hearing the answer, I say "Oh, so you really raised $200,000" or something to that effect.

How does all this connect to SOP 98-2? Bottom line, 98-2 is attempt to clarify how a nonprofit should (must) handle the overlap of fundraising costs with education or administrative costs.

Accountants call this overlap a "Joint Activity". SOP 98-2 requires that allocation methods be rational and systematic, result in reasonable allocations and be applied consistently by NPO's given similar facts and circumstances.

The problem? It provides no detailed guidance on how allocations should be calculated or which methods should be used.

if you are going to mix the purposes of fundraising or program info, if you aren’t careful you need to allocate the entire cost to fundraising, and you have to prove that there is an educational content (in that case % fundraising or Direct Mail Association

When your nonprofit makes a solicitation (for example sends a newsletter out with a return envelope for potential donors)that activity is referred to called a joint activity. The criteria: purpose, audience and content. If the activity does not meet all three criteria SOP 98-2 requires the nonprofit to report any costs of a joint activity as fundraising.


Resources:

How to Report a Joint Activity


Tools for Nonprofit Mailers



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2 comments:

a fundraiser said...

Sometimes I feel like the clause "be applied consistently by NPO's given similar facts and circumstances" fosters race to the bottom where fundraisers try hard to get around the law and hide from the truth.

But no is also no doubt that some media attention is nothing more than "gotcha journalism" designed to drive audience and sell advertising without asking the harder questions.

An example is what happened in Canada with MADD this month.

a fundraiser said...

Here's a link to that MADD story:

http://donttellthedonor.blogspot.com/2006/12/madd-board-fights-back-they-are.html