#3 Contributions/Event - Communication to Donor is Important

In our 2 previous posts in the contribution/event series, we have discussed the common scenario of a non-profit solicitating contributions/revenues in exchange for a donor benefit. Donors often receive something in exchange for a contribution. Whether it is a meal, a book, a video, all of these items are treated similarly. Remember the criteria for financial reporting:

What has been communicated to the donor and what is the donor’s intended response?

The Financial Accounting Standards Board (FASB) and the American Institute of Certified Public Accountants (AICPA) consider these types of items as direct donor benefits. The donor receives a benefit in exchange for the contribution or “event” sponsorship.

The Internal Revenue Service (IRS) refers to this type of contributions as a quid pro quo contribution. The above regulatory agencies have a similar view of how to treat these items, the first two specifically focusing on financial reporting requirements, and the later on tax benefit considerations.

The following is an excerpt from the AICPA’s Not-For-Profit Audit Guide, chapter 13 paragraph 22:
Organizations may report the gross revenues of special events and other fund-raising activities with the cost of direct benefits to donors (for example, meals and facilities rental) displayed either (1) as a line item deducted from the special event revenues or (2) in the same section of the statement of activities as are other programs or supporting services and allocated, if necessary, among those various functions.

Alternatively, the organization could consider revenue from special events and other fund- raising activities as part exchange (for the fair value the participant received) and part contribution (for the excess of the payment over that fair value) and report the two parts separately.

The above guidance by the AICPA is excellent in helping with the financial reporting aspects of this situation. The following are the presentation options discussed above:

Illustration 1
Changes in unrestricted net assets:
Contributions $200
Special event revenue 100
Less: Costs of direct benefits to donors (25)
Net revenues from special events 75

Contributions and net revenues from special events $275

Expenses:
Program 60
Management and general 20
Fund raising 35
Total expenses 115
Increase in unrestricted net assets $160

Illustration 2
Changes in unrestricted net assets:
Revenues:
Contributions $200
Special event revenue 100
Total revenues 300

Expenses:
Program 60
Other program costs relating to
direct donor benefits 25
Management and general 20
Fund raising 35

Total expenses 140

Increase in unrestricted net assets $160

The "net answer" remained the same, just a difference in reporting the expense as "net revenue" or "expense". See post # 4 as we finalize our discussion on these types of contributions.