Nonprofit GPS

Your Personal Navigation System Through Not-for-Profit Accounting Issues

Distinguishing direct donor benefits from fundraising expenses

direct donor benefits, nonprofit accounting, fundraising expensesMany not-for-profit organizations hold special fundraising events with the intent to raise contributions to support their mission, such as galas, balls, dinners, theater parties and auctions. Donor participants purchase tickets to attend the event in exchange for goods or services provided as a benefit to the participant. The direct benefits to the donor participant are the actual costs of the goods and services provided to the attendees as inducements to attend the event. Direct donor benefits include the cost of:

  • Meals
  • Refreshments
  • Venues
  • Entertainment
  • Decorations
  • Theater tickets, if the event is a theater party
  • Raffle items and goody bags

The cost of direct donor benefits is not considered to be a fundraising activity of the organization. Instead, they are considered to be an exchange transaction for the fair value of the goods and services furnished to the donor. On the Statement of Activities and Statement of Functional Expenses, direct donor benefits are reported separately.

Don’t miss: Functional expense allocation – what to include

Fundraising expenses

There are always additional costs incurred to conduct a special event. This includes direct and indirect costs, which are reported as fundraising expenses. These costs may include:

  • Printing costs for tickets and posters
  • Mailings and postage
  • Public relations and fundraising consulting fees
  • Allocated salaries and benefits

Reporting requirements

One of the most common presentation methods is to show revenues and expenses from special events at gross amounts on the Statement of Activities. Revenue includes the income generated from the ticket sales for the special event and is reported separately from contributions. The direct donor benefit represents the expense related to the special event and reported below special event income. Below is an illustrated example of the Statement of Activities:

Conditions and net revenue  
Contributions$200,000
Special event income$10,000
Less: direct donor benefit(6,500)3,500
Contributions and net revenue from special events$203,500
Expenses:
Program70,000
Management & general20,000
Fundraising5,000
Total expenses95,000
Increase in net assets without donor restrictions$108,500

If you have questions about direct donor benefits from fundraising expenses, don’t hesitate to reach out to your Henry+Horne professional advisor.

Karen Lord, CPA