Article on joint cost allocation in Chronicle of Philanthropy

My post today will have lots of accounting shorthand.  This week’s print edition of the Chronicle of Philanthropy has a major article by Suzanne Perry on allocation of joint costs – Watchdog Cracks Down on Misleading Statements on Fundraising Costs.

Article is not yet visible on their website.

I have two observations.

If you’ve been hoping that the attention accounting in the nonprofit world has been getting lately from news organizations would go away or if you think reporters don’t understand accounting theory, think again.

This article shows the attention is not going away. Ms. Perry’s article also demonstrates quite clearly, in case you previously had any doubt, that reporters can understand obscure, complicated accounting issues and explain them in lay language. This feature-length article makes both points quite clear.

Second, the article has given me a good smell test whether it’s appropriate to have any joint cost allocation. To allocate any costs into program as an educational effort, you need to have a significant, ongoing educational effort apart from the fundraising efforts. There are detailed accounting rules to work through, but ponder that as a smell test.

I’d not thought of it this way before, probably because I have my head in the minutia of accounting rules.

Here is a very nontechnical description for you. Try this:

You might have all of your efforts concentrated on delivering service in your area of focus, whether that is running a medical clinic, sending missionaries overseas, or feeding the homeless.  If that’s the case, you can’t say your educational program consists of your cold-call telemarketing effort or direct mail sent to addresses on a purchased mailing list. You need to have an education program apart from the costs being allocated.

When the article appears online, I’ll have more to say.