Licensure of fundraising professionals is not yet a serious consideration and could be unwieldy to implement, considering the more than 1 million tax-exempt charitable organizations doing business in the United States. Fundraising staff and consultants do benefit from participation in accreditation programs because they reflect a level of personal commitment to the craft and demonstrate levels of competency attained. Presently, the accepted certification programs are offered by the AHP and AFP.
(d) Standards of Conduct and Professional Practice
As with any emerging profession, common standards require time for development. Fundraising standards originated as codes of ethics but have since matured into standards of conduct and professional practice. While the AAFRC, AHP, CASE, and AFP have their own written texts in this area, they have not yet achieved a common standard to govern what is, in essence, the same form of activity.55
§ 2.4 ROLE OF AN ACCOUNTANT
An accountant serving a charitable organization that engages in fundraising also has a variety of responsibilities, as discussed in the following analysis.56 Accounting for fundraising costs is one of the most sensitive areas of financial accounting, reporting, and management for organizations that solicit funds from the public. The level of fundraising expenses with respect to contributions is generally perceived as an index of management performance. Amounts reported as fundraising expenses, accordingly, are carefully examined by organization constituents and directors, contributors, and regulatory agencies.
An accountant in an organization that solicits funds from the public has several important responsibilities, including accounting for fundraising costs in a manner that (1) is consistent with generally accepted accounting principles; (2) is consistent with the financial reporting requirements of state and other regulatory agencies; and (3) facilitates sound financial management of the organization.
(a) Generally Accepted Accounting Principles
Professional accounting literature applicable to not-for-profit organizations requires that organizations report fundraising expenses separately from other supporting expenses and program expenses.
Fundraising expenses generally include all costs involved in inducing others to contribute resources without receipt of economic benefits in return. Fundraising costs usually consist of the direct costs of solicitation (such as the cost of personnel, printing, postage, occupancy, and so on) and a fair allocation of overhead.
One aspect of accounting for fundraising costs is subject to considerable judgment—accounting for the joint costs (such as postage) of multiple-purpose materials, such as educational literature that also includes a request for funds. Formerly, accounting literature (and industry practice) was inconsistent on this issue. Some organizations allocated joint costs between respective functions. Other organizations did not allocate joint costs and reported joint fundraising and educational costs exclusively as fundraising expenses.
Functional allocation of multiple-purpose expenses is now required by the accounting profession in its most recent pronouncement on the subject, if certain criteria are met. Recommended bases of allocation include the content of the materials, the use made of materials, and costs associated with different functions.
(b) Financial Reporting Requirements
Nonprofit organizations that solicit funds in several states are confronted with a web of financial reporting requirements. Regulation of charities in different states is the responsibility of different agencies with different reporting requirements and different filing deadlines. In addition, charities are often subject to the registration and reporting requirements of local units of government.
Fundraising expenses frequently are a focus of state and local regulators. Different jurisdictions require different detail in reporting fundraising costs. Some states and municipalities have attempted to restrict the right of solicitation to organizations whose fundraising costs do not exceed a fixed percentage of contributions, but the federal courts have ruled this to be unconstitutional.
State and local regulation of charities is fluid and subject to unanticipated changes. Accountants, therefore, must closely monitor the reporting requirements of all jurisdictions in which their organization solicits funds from the public.
Accountants must also be alert to guidelines established by private “watchdog” agencies. These agencies establish “standards” for nonprofit organizations. Deviation from these standards may result in public censure and in sanctions, in the form of reduced or withheld contributions from corporations and other grantmaking organizations that judge potential donees and grantees on the basis of these standards.
(c) Financial Management
In addition to conforming with generally accepted accounting principles and with reporting requirements of various regulatory bodies, accounting for fundraising expenses should provide information that facilitates sound financial management.
Creation of information of this type usually requires a system of cost identification and cost allocation. Effective analysis of fundraising costs requires an accurate identification of fundraising cost components and an objective allocation of joint costs and overhead.
By relating the cost of various fundraising activities with the amount of contributions received—that is, identifying the cost of each dollar raised—fundraising policy may be enhanced and the results of fundraising activities may be improved.
§ 2.5 ROLE OF A LAWYER
The legal counsel who represents or otherwise works for a charitable organization that is ensnarled in regulation of its fundraising likewise has a multitude of responsibilities. In addition to all other tasks that must be undertaken in serving the organization, they should:
Review the law of each jurisdiction in which the organization solicits contributions and advise on compliance responsibilities.
See that all applications, forms, reports, and the like are properly prepared and timely filed.
Assist the organization where it is having difficulties with enforcement authorities, such as by helping prepare a statement in explanation of its fundraising costs or by arguing its case before administrative staff(s), state commission(s), or court(s).
Review and advise as to agreements between the organization and professional fundraisers and/or professional solicitors.
Assist the organization in the preparation of annual reports and other materials by which it presents its programs, sources of support, and expenses to the general public.
Keep abreast of recent developments in the law concerning government regulation of fundraising by charitable organizations.
One problem facing lawyers who represent charitable organizations in the fundraising setting warrants particular mention. It is common knowledge that some states regulate charitable fundraising more stringently than others. It is also common knowledge that the states will not proceed against charitable organizations that are not in compliance with their law without first contacting organizations and requesting their compliance. Thus, many charitable
