AICPA New Accounting Standards Could Make Direct
Mailers Look Bad
The American Institute of Certified Public Accountants (AICPA) and the Financial Accounting Standards Board (FASB) are moving forward with a plan to change the accounting procedures and rewrite the rules by which nonprofits are audited to make groups which use direct mail look bad. Instead of classifying the educational portion of a multi-purpose mailing as educational (or program), and the fund-raising portion as fund-raising, the new rules would require that most mailings that contain a request for funds be classified entirely as a fund-raising expenditure.
As we predicted in October 1995, the AICPA ignored the overwhelming number of objections and adopted the Exposure Draft, which was cleared by FASB. This proposal would modify the existing rules (Statement Of Position 87-2) governing the allocation of joint costs by nonprofit organizations where fund-raising is part of the expenditure. Of the 300+ written responses that AICPA received by early 1994, reportedly 90 percent (and 98 percent of the nonprofit organizations, including FSC and many of its members) opposed the proposal.
It now appears that the AICPA will ignore the nearly universal opposition to its new accounting standard &emdash; and the public will NOT be permitted to see or comment further on the draft document, even though its impact on nonprofits will be significant. Joel Tanenbaum of the AICPA advised that only a limited number of AICPA members are being permitted to review the document. Based on latest information, the final form of the new procedures (SOP 87-2) will be issued in November 1997, and become effective for fiscal years that begin after June 15, 1998.
The proposed changes indicate at least four ways (see draft flowchart on page 2) in which all costs are attributed to fund raising and none to educational activity, even if some or all of the contents of the letter are educational in nature. That doesn't sound like "joint cost allocation." As FSC said when the first draft was issued in 1993, "by proposing to virtually abandon allocation of joint costs where fund- raising is one of the functions, [it] abandons precedent and common sense."
What do the new standards mean for nonprofits? FSC obtained a flowchart analysis of the proposal. Under new draft criteria, "[if] a majority of compensation or fees of any party performing a component of the discrete joint activity vary based on contributions raised for that discrete joint activity," then the entire cost of the activity [mailing] should be charged to fund-raising. In other words, if a nonprofit uses professional fund-raisers who are compensated based on the performance of the nonprofits' solicitation, the entire cost, regardless of how much of the mailing is educational, would be attributed to fund-raising.
The standards, while promulgated by a nongovernmental entity and not subject to public disclosure and review, are tantamount to government regulations.
Some nonprofits are evaluating a legal challenge to any such new accounting standard, although it is not clear at this time how much support is available for such a lawsuit. FSC will continue to keep members posted on developments.
Under the new AICPA proposed "joint
allocation" formulas, nonprofits' who use direct mail to
garner support, may find themselves having to attribute 100
percent of their costs to fund-raising.
Senate Expands List of Targeted Nonprofits
American Defense Institute
American Defense Foundation
National Right to Life Committee
Citizens for a Sound Economy
Better America Foundation
The American Cause
The Coalition: Americans Working
Women for Tax Reform; for a Real Change
The Heritage Foundation
Citizens Against Government Waste
National Education Association
National Council of Senior Citizens
Democratic Leadership Council
Association of Trial Lawyers of America
National Committee for an Effective Congress
Americans United for Separation of Church and State
As nonprofit groups are hauled before the
Senate Committee, it is important to remember that there
will be attempts by both political parties to exploit the
fact that organizations have political ideas that may not be
in the mainstream, and to use this as an excuse to
clamp-down on all nonprofit advocacy groups. We encourage
Free Speech supporters to support all political speech.
Remember, the free speech you save may be your own!
Legal Analysis in Opposition to Senate Subpoenas
Weinberg and Boos give practical advice to targeted nonprofits. The Weinberg article is available on the Internet at: http://wjlaw.com/senatesubpoenas.html. To obtain a copy of the Boos memo, call the National Citizens Legal Network (703-352-4788) or the Free Speech Coalition (703-356-6912).
The Free Speech Coalition was one of the first advocacy organizations to alert nonprofits about the chilling effects the Senate's special investigation would have on freedom of speech, assembly, association, and to petition the government for a redress of grievances. FSC's last two newsletters have dealt extensively with recent federal government attempts to limit or restrict American's advocacy rights.
Additionally, two FSC members, Doug
Johnson and Mike Beard, recently collaborated in writing a
white paper about election law reform and issue advocacy,
titled, "Campaign Reform: Let's Not Give Politicians the
Power to Decide What We Can Say about Them." For a copy of
this report, please contact FSC.
Court Strikes Down L.A. Law Limiting Solicitation to
There is no evidence that those without
nonprofit status are any more cumbersome upon fair
competition or free traffic flow than those with nonprofit
status. There is no justification for allowing those with
membership in a nonprofit organization to sell items and
solicit donations, while disallowing those with no nonprofit
membership from the same activities. Perry v. Los Angeles
Policy Department, 96-55545, 9th U.S. Circuit Court of
Appeals (emphasis added).
Politicians' Reason for Limiting the First Amendment,
Meet the Press, February 20, 1997