Accounting Standards Board Changes Rule on How to Report Earmarked Donations

The Financial Accounting Standards Board has changed the way charitable organizations are supposed to report donations that are collected in behalf of another non-profit group.

The board’s new rule, known as Standard No. 136, will mainly affect organizations — like United Ways, Jewish federations, and community foundations — that collect money and send it to charities specified by the donor.

Such organizations will not be allowed to count in their own fund-raising totals the gifts that donors earmark for other groups. Many are concerned that the new rules will make their fund-raising costs look high in proportion to the amount they collect.

United Way of America’s chief administrative officer, Chris Amundsen, called the new ruling “disappointing.” In a written statement, Mr. Amundsen argued that United Ways will not be able to report as revenue “a significant amount of contributions.” At the same time, he said, “expenses will include administrative and fund-raising costs for the entire campaign. As a result, United Ways and other federated fund-raising organizations will appear less efficient.”

The changes affect financial statements covering fiscal periods starting after December 15, 1999.

Charities are not required by law to follow the accounting board standards, but most do so voluntarily.

The new rule shouldn’t affect the way organizations fill out the informational tax returns, or Form 990s, that they submit to the Internal Revenue Service. For the past 20 years the service has prohibited organizations that collect money for others from including those dollars in their fund-raising totals.

The only exception to the new accounting standard is when a donor gives a charity the right to choose which group ultimately receives the money. Many community foundations choose beneficiaries, as do some United Ways and other similar federations.

The new standard emerged as a result of questions some community foundations raised after the accounting board in 1993 issued rules designed to make the books of different types of charities easier to compare.

Many community foundations asked the accounting board to clarify how they should report contributions that donors earmarked for a particular cause — but gave the foundation the right to direct to a specific charity.

Copies of Standard No. 136 can be ordered by writing Order Department, FASB, 401 Merritt 7, P.O. Box 5116, Norwalk, Conn. 06856-5116, or by calling (800) 748-0659. A summary can also be found at http://www.fasb.org.