Case Studies in Not-for-Profit Accounting and Auditing

Chapter 12 ALLOCATION OF COSTS RELATING TO FUNDRAISING

LEARNING OBJECTIVES

After completing this chapter, you should be able to do the following:

• Determine the essential requirements and decisions connected to the allocation of costs that relate to fundraising.
• Identify characteristics of fundraising activities.

TECHNICAL BACKGROUND INFORMATION

Not-for-profit entities are required to report information about the functional classification of expenses, such as major classes of program services and supporting activities. This information can be presented in the statement of activities or in the notes to the financial statements.

Program services are activities that result in goods and services being distributed to beneficiaries, customers, or members that fulfill the purposes or mission of the organization. Supporting services are activities other than program services and include management as well as general, fund-raising, and membership development activities. Supporting services may include, as one or more separate categories, cost of sales and costs of other revenue-generating activities that are not program related. The following illustration demonstrates one way of thinking of the relationship between program services and supporting services.

It is imperative that not-for-profit entities classify and report program services and supporting services correctly. Donors ...