Both the Form 990 and your financial statements are required to disclose any joint costs that have been allocated. Many times our clients will respond to our inquiry about such costs with an explanation of how they allocated the cost for this one activity between the two programs to which it related. While we appreciate that they were able to allocate those costs, they do not qualify as Joint Costs. If you thought of similar costs when you saw Joint Costs, read on. Or if you are thinking to yourself that you think you know what a Joint Cost is, but you aren’t certain about allocating them, this is for you.

Joint Costs – costs related to an activity that includes a fund-raising appeal.

For the most part these are costs that are related to such things as your newsletter that includes a solicitation for donations. Or your website where you are providing information about your organization but also requesting donations. In terms of allocating such costs, the presumption is that the expense is a fundraising expense. That means 100% of the costs for that newsletter or website or activity would be a fundraising expense. Unless you meet three very specific criteria:

Purpose
Audience
Content

Note that all three must be met in order to be permitted to allocate the cost between fundraising and program (or management & general).

Purpose – the main purpose is to accomplish the organization’s mission. This is very subjective, however there is guidance: is a similar activity conducted without a fundraising component? Or the activity does not have any fundraising measurement (you are not measuring the success of the activity based upon the amount of money received)? 

Audience – if it is sent to all your former donors or a list of “potential donors” it is likely not going to qualify for this test. You need to be able to demonstrate that the audience was selected to fulfill the organization’s mission rather than to fulfill the organization’s need for funds to fulfill the mission.

Content – the content must support the program or the organization’s mission.

Accounting Standards are very specific in their requirements, and while the above provides a good overview, if you are still unsure you should contact your accountant and review the standards.

Katie Thomas, CPA