In the world of nonprofit expense classification, the “program” category is king. Donors and grantors often scrutinize an organization’s financials to ensure their dollars will go towards program expenses, rather than the much-maligned “general/operating” or even “fund raising” categories. This preference for programs over operating/fundraising expenses is a thorny issue among nonprofits, but the evidence is clear: the more dollars you can categorize as “program expenses,” the more attractive your organization may look to donors.
Fortunately, as CPAs with years of experience working with nonprofits, we can tell you that you’re probably overlooking a few opportunities for re-categorization. For example, special events.
You may think that all special event costs should be classified as “fund raising.” After all, you’re holding a special event specifically because you need to raise funds. However, if you meet certain criteria set forth by the AICPA, you may be able to classify some of those special event costs as program expenses instead.
For detailed information on these requirements, click over to this oldie-but-goodie from the Altruic Advisors blog:
If all three necessary criteria are met, you may allocate the exchange transactions occurring during your special event as program expenses. In addition, you may be able to allocate a portion of the remaining joint costs as program expenses too! It might take some complex calculations to determine exactly what portion of the joint costs you can properly categorize as program expenses, but hey, that’s what you have an accountant for, right? We’ve shown a few methods of calculating this allocation in another archived blog post:
By taking advantage of all possible allocations, you may be able to boost your organization’s program expenses significantly, making you more attractive to potential donors.