In a nonprofit or fundraising context, a joint activity refers to a specific action or project that includes both components of fundraising and other functions such as program or management activities. Joint activities are common in nonprofits where a single event or action can simultaneously serve multiple purposes.
For example, a charity may host an event where they aim to both raise funds (a fundraising activity) and raise awareness about their cause (a program activity). This event is considered a joint activity because it incorporates elements of both fundraising and program functions.
From an accounting perspective, joint activities raise questions about how costs should be allocated between the different functions involved. This is important because how these costs are reported can impact how donors perceive the organization, particularly in regards to overhead costs.
The Financial Accounting Standards Board (FASB) in the United States provides guidance on accounting for joint activities in the Not-for-Profit Entities Topic (ASC 958-720) of its Accounting Standards Codification. The key principle here is that costs of a joint activity should be allocated between fundraising and the appropriate program or management function on the basis of whether a specific cost benefits both functions or benefits one function more than the other.
In order for a portion of a joint cost to be allocated away from fundraising and to program or management and general functions, it must meet three criteria:
- Purpose criteria: the activity must call for specific action that advances the organization’s mission.
- Audience criteria: the audience must have a demonstrated interest in the program or management and general function.
- Content criteria: the content must support the program or management and general function.
These standards aim to ensure that the allocation of costs in joint activities is fair and accurately reflects the nature of the activity.
Example of a Joint Activity
Let’s use an example of a nonprofit organization that advocates for environmental conservation.
- Joint Activity: The organization decides to host a gala event. The primary purpose of this event is to raise funds for their projects (fundraising activity). Simultaneously, the event will educate attendees about ongoing environmental issues and the organization’s work to address these problems (program activity).
- Costs and Allocation: The total cost of the event is $20,000. This includes venue rental, food, entertainment, and promotional materials (like brochures and videos about their ongoing projects). The organization must now determine how to allocate these costs between fundraising and program activities.
Following the FASB guidance, they consider the purpose, audience, and content criteria:
- Purpose Criteria: The gala calls for action in two ways: donating funds (fundraising) and taking environmental actions in their own lives (program).
- Audience Criteria: The attendees at the gala are both donors (interested in fundraising) and environmental enthusiasts (interested in the program).
- Content Criteria: The content of the event (speeches, brochures, videos) includes both fundraising appeals and educational material on environmental issues.
Given these criteria, the organization decides to allocate 50% of the costs to fundraising and 50% to program expenses. Therefore, $10,000 is reported as fundraising expense, and $10,000 is reported as a program expense.
This allocation accurately reflects the dual purpose of the event and ensures transparency in reporting the organization’s expenditures. It’s important to remember that the precise allocation can vary based on the specifics of the activity and the organization’s judgement.