Defining and Accounting for “Fundraising” Income and Expenses

McGregor-Lowndes M, Flack T, Marsden S, Poole G.

Demand for greater public accountability

• Regulation by “transparency” • ACNC Register - publication of

annual financial statements• Media interest in comparing

charities• Public demand for “ratios” as proxy

for “worthiness”

Gugerty, M. K. (2009). Signaling virtue: voluntary accountability programs among nonprofit organizations. Policy Sciences, 42(3), 243–273. Cordery, C. (2013). Regulating Small and Medium Charities: Does It Improve Transparency and Accountability? VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 24(3), 831–851.

Use of

“League Tables”

Rating Agencies

Rating Agencies

“The charities willing gave Choice their financial info…however… … info is structured in different ways, so that it becomes impossible to compare.”

(Choice 2008)

Summary of findings

• AFRs of 13 award-winning charities in 4 States

• No two charities reported fundraising in the same way

• In the 11 AFRs that did contain references to revenue transactions that could reasonably be identified as “fundraising”-– 45 different terms or combination of terms were used;

– 5 disclosed revenue from “Trusts/Foundations/Grants;

– 4 disclosed revenue from “Fundraising Appeals

– 4 disclosed revenue from “Bequests”

Effects -Non-comparability

“Corporate”“Bequests”“Masses donations”“Gifts in kind”“Op shop sales”

“Gross proceeds from donations and fundraising”

International comparisons

• Five comparable jurisdictions were examined(England and Wales, USA, Canada, Singapore and NZ)

– Four of the five have well documented problems with financial reporting of “fundraising”

(Aldrich, 2009; Breen, 2009; Connelly et al, 2013; Cordery, 2013; Froelich and Knoepfle, 1996, Morgan, 2011, 2013; Phillips, 2013)

• Australia has accounting standards that do not specifically address “fundraising” transactions

Lack of a definition of “fundraising”

State regulators use different definitions

QLD NSW ACT VIC TAS

Donations *1 *2

Membership X X X X

Bequests X X

Trusts & Fnd X X

Raffles X X X

CorporateSponsorship

X X

Sales of articles

X

Note 1. Except from Local Councils, Congregations, Common place of employment.Note 2. Except from a corporation

Multiple types of “fundraising” transactions

Sales of goods, Sale of services or transfers?

• Donations?• Fetes, Fairs, Stalls, Markets?• Charity Balls, Dinners, Auctions?• Opportunity shops, Merchandising?• Sponsorships, Cause-related marketing?• Trusts and Foundations?, • Grants from local councils?• Raffles, Bingo, Lotteries?• Bequests?

Alternative solutions?

• “By nature” - Revenue from – “sale of goods”– “provision of services”– “interest, royalties and dividends” (AASB 118)

– “contributions” (donations) (AASB1004)

• separate disclosure of expenses from sale of goods (AASB102)

- all other expenses as general expenses

• “By function” – Revenue from (para 99 of AASB101)

– “Fundraising”

• Direct costs + reasonable share of joint costs, or• Direct costs only

Joint cost allocation

• “reasonable share of costs” ?

= Direct costs + share of overheads

e.g. Rent, power, insurances, telephone, stationery, IT services, cleaning, etc?

- Share of Accounts Department costs?

- Portion of Receptionist’s time?

- Share of the costs of the annual report?

- Share of the costs of the membership newsletter?

Joint cost allocation

• Direct costs only method– Convert cash donors to in-kind

donors of direct costs

– Hire casual staff to key fundraising transactions

– Obtain in-kind sponsorships for direct costs

– Redirect service volunteers to assist with mailings

– Use all staff working bees

Findings

• The way in which fundraising is reported in the financial statements of fundraising charities in Australia makes their reports non-comparable.

• Any comparisons or “league tables” generated from published accounts (particularly accrossjurisdictions) are unreliable and likely to mislead users.

• In the absence of any detailed guidance, preparers tend to collect financial information about fundraising to suit their local State/Territory regulations.

Recommendations

• “Fundraising” should be treated as a “whole of entity” activity

• Major classess of fundraising income should be disclosed where material

• Cost of goods sold as a part of fundraising activities should be disclosed

• All other fundraising expenses should be disclosed as general expenses.

Questions?

Thank you