Accounting for Joint Activities

The latest view on not-for-profit accounting issues

Determining whether an organization conducts joint activities and properly accounts for these activities can be challenging at times, as it can be subjective depending on the fundraising activity. In our experience, we have encountered not-for-profit organizations with joint activities that could partially be divided into separate expense categories.

Not-for-profits have three categories to allocate expenses that include:

  1. Program—money spent on organization’s mission,
  2. Fundraising—the costs in raising money for the mission, and
  3. Management and General—the cost of managing the organization.

Many clients strive to allocate a majority of their expenditures towards their program mission in efforts to decrease total fundraising expenses. Fundraising costs can include advertising, telemarketing, publications, direct mail, and other solicitation activities; however, when these activities include a call to action, the organization may be able to report them as joint activities. The costs that are determined to be incurred for joint activities could be partially allocated to the specific program expense, and in part, to fundraising or management and general expenses.

The rules for an activity to be recognized as joint costs require criteria relating to “purpose, audience, and content”. These criteria must be met in order to allow partial allocation to a function of the program mission. The call to action must include a purpose directed at an audience that promotes the organization’s goal (not just the goal of raising money). Management must evaluate joint activities for the criteria to ensure that the costs are properly accounted for under the accounting standards. Determining when expenses meet the definition of joint costs is not a black and white decision. Interpretation and judgment are usually factors that go into the determination.

By Danielle T. Roisom