The Cease and Desist Order filed by the Michigan Attorney General on December 19, 2017 provides an analysis of the joint cost allocation methodology used by Food For the Poor. The Order can be found here.
FFP hires pastors from various denominations to make presentations at churches in the pastors’ denomination. FFP applies joint cost allocation accounting to classify a large portion of the speakers’ time as program services. The AG concluded the allocation methodology did not follow GAAP.
As mentioned previously, FFP settled the AG’s allegations by agreeing to pay the state $300,000 and revising its fundraising materials.
For general education of the nonprofit community, this post will quote the AG’s Cease and Desist Order at length on the joint cost allocation issue.
The authoritative explanation of what constitutes generally accepted accounting principles is found in FASB’s Accounting Standards Codification™ (ASC). I will add some citations from ASC to the AG’s Order. Will also add a few comments along the way.
A detailed look at the AG’s Order is valuable because it provides an in-depth analysis of a specific situation with a detailed comparison to authoritative GAAP.
You might want to get a fresh cup of coffee since this post is a long read, currently sitting at over 1,500 words. It is also quite technical.