Excerpts From New Accounting Rules on Fund Raising

Following are excerpts of new rules that the American Institute of Certified Public Accountants issued this month to explain how charities can decide what expenses should be alloted to fund raising and what should be counted as other kinds of costs. The institute encouraged organizations to start using the new rules as soon as possible, but no later than in fiscal years starting on or after December 15, 1998.

Accounting for Joint Activities

7. If the criteria of purpose, audience, and content are met, the costs of a joint activity that are identifiable with a particular function should be charged to that function and joint costs should be allocated between fund raising and the appropriate program or management and general function. If any of the criteria are not met, all costs of the joint activity should be reported as fund-raising costs, including costs that otherwise might be considered program or management and general costs if they had been incurred in a different activity, subject to the exception in the following sentence. Costs of goods or services provided in exchange transactions that are part of joint activities, such as costs of direct donor benefits of a spe cial event (for example, a meal), should not be reported as fund raising.

Purpose

8. The purpose criterion is met if the purpose of the joint activity includes accomplishing program or management and general functions. (Paragraphs 9 and 10 provide guidance that should be considered in determining whether the purpose criterion is met. Paragraph 9 provides guidance pertaining to program functions only. Paragraph 10 provides guidance pertaining to both program and management and general functions.)

9. Program functions. To accomplish program functions, the activity should call for specific action by the audience that will help accomplish the entity’s mission. For purposes of applying the guidance in this [Statement of Position], the following are examples of activities that do and do not call for specific action by the audience that will help accomplish the entity’s mission:

* An entity’s mission includes improving individuals’ physical health. For that entity, motivating the audience to take specific action that will improve their physical health is a call for specific action by the audience that will help accomplish the entity’s mission. An example of an activity that motivates the audience to take specific action that will improve their physical health is sending the audience a brochure that urges them to stop smoking and suggests specific methods, instructions, references, and resources that may be used to stop smoking.

* An entity’s mission includes educating individuals in areas other than the causes, conditions, needs, or concerns that the entity’s programs are designed to addressed (referred to hereafter in this S.O.P. as “causes”). For that entity, educating the audience in areas other than causes or motivating the audience to otherwise engage in specific activities that will educate them in areas other than causes is a call for specific action by the audience that will help accomplish the entity’s mission. Examples of entities whose mission includes educating individuals in areas other than causes are univer sities and possibly other entities. An example of an activity motivating individuals to engage in education in areas other than causes is a university inviting individuals to attend a lecture or class in which the individuals will learn about the solar system.

* Educating the audience about causes or motivating the audience to otherwise engage in specific activities that will educate them about causes is not a call for specific action by the audience that will help accomplish the entity’s mission. Such activities are considered in support of fund raising. (However, some educational activities that might otherwise be considered as educating the audience about causes may implicitly call for specific action by the audience that will help accomplish the entity’s mission. For example, activities that educate the audience about environmental problems caused by not recycling implicitly call for that audience to increase recycling. If the need for and benefits of the specific action are clearly evident from the educational message, the message is considered to include an implicit call for specific action by the audience that will help accomplish the entity’s mission.)

* Asking the audience to make contributions is not a call for specific action by the audience that will help accomplish the entity’s mission.

If the activity calls for specific action by the audience that will help accomplish the entity’s mission, the guidance in paragraph 10 should also be considered in determining whether the purpose criterion is met.

10. Program and management and general functions. The following factors should be considered, in the order in which they are listed, to determine whether the purpose criterion is met:

a. Whether compensation or fees for performing the activity are based on contributions raised. The purpose criterion is not met if a majority of compensation or fees for any party’s performance of any component of the discrete joint activity varies based on contributions raised for that discrete joint activity.

b. Whether a similar program or management and general activity is conducted separately and on a similar or greater scale. The purpose criterion is met if either of the following two conditions is met:

(1) Condition 1:

* The program component of the joint activity calls for specific action by the recipient that will help accomplish the entity’s mission and

* A similar program component is conducted without the fund-raising component using the same medium and on a scale that is similar to or greater than the scale on which it is conducted with the fund raising.

(2) Condition 2:

* A management and general activity that is similar to the management and general component of the joint activity being accounted for is conducted without the fund-raising component using the same medium and on a scale that is similar to or greater than the scale on which it is conducted with the fund raising.

If the purpose criterion is met based on the factor in paragraph 10b, the factor in paragraph 10c should not be considered.

c. Other evidence. If the factors in paragraphs 10a or 10b do not determine whether the purpose criterion is met, other evidence may determine whether the criterion is met. All available evidence, both positive and negative, should be considered to determine whether, based on the weight of that evidence, the purpose criterion is met.

11. The following are examples of indicators that provide evidence for determining whether the purpose criterion is met:

a. Evidence that the purpose criterion may be met includes:

* Measuring program results and accomplishments of the activity. The facts may indicate that the purpose criterion is met if the entity measures program results and accomplishments of the joint activity (other than measuring the extent to which the public was educated about causes).

* Medium. The facts may indicate that the purpose criterion is met if the program component of the joint activity calls for specific action by the recipient that will help accomplish the entity’s mission and if the entity conducts the program component without a significant fund-raising component in a different medium. Also, the facts may indicate that the purpose criterion is met if the entity con ducts the management and general component of the joint activ ity without a significant fund-raising component in a different medium.

b. Evidence that the purpose criterion may not be met includes:

* Evaluation or compensation. The facts may indicate that the purpose criterion is not met if (a) the evaluation of any party’s performance of any component of the discrete joint activity varies based on contributions raised for that discrete joint activity or (b) some, but less than a majority, of compensation or fees for any party’s performance of any component of the discrete joint activity var ies based on contributions raised for that discrete joint activi ty.

c. Evidence that the purpose criterion may be either met or not met includes:

* Evaluation of measured results of the activity. The entity may have a process to evaluate measured program results and accomplishments of the joint activity (other than measuring the extent to which the public was educated about causes). If the entity has such a process, in evaluating the effectiveness of the joint activity, the entity may place significantly greater weight on the activity’s effectiveness in accomplishing program goals or may place significantly greater weight on the ac tivity’s effectiveness in raising contributions. The former may indicate that the purpose criterion is met. The latter may indicate that the purpose criterion is not met.

* Qualifications. The qualifications and duties of those performing the joint activity should be considered.

— If a third party, such as a consultant or contractor, performs part or all of the joint activity, such as producing brochures or making telephone calls, the third party’s experience and the range of services provided to the entity should be considered in determining whether the third party is performing fund-raising, program (other than educating the public about causes), or management and general activities on behalf of the entity.

— If the entity’s employees perform part or all of the joint activity, the full range of their job duties should be considered in determining whether those employees are performing fund-raising, program (other than educating the public about causes), or management and general activities on behalf of the entity. For example, (a) employees who are not members of the fund-raising department and (b) employees who are members of the fund-raising department but who perform non-fund-raising activities are more likely to perform activities that include program or management and general functions than are employees who otherwise devote significant time to fund raising.

* Tangible evidence of intent. Tangible evidence indicating the intended purpose of the joint ac tivity should be considered. Ex amples of tangible evidence in clude:

— The entity’s written mission statement, as stated in its fund-raising activities, bylaws, or annual report.

— Minutes of board of directors’, committees’, or other meetings.

— Restrictions imposed by donors (who are not related parties) on gifts intended to fund the joint activity.

— Long-range plans or operating policies.

— Written instructions to other entities, such as script writers, consultants, or list brokers, concerning the purpose of the joint activity, audience to be targeted, or method of conducting the joint activity.

— Internal management memoranda.

Audience

12. A rebuttable presumption exists that the audience criterion is not met if the audience includes prior donors or is otherwise selected based on its ability or likelihood to contribute to the entity. That presumption can be overcome if the audience is also selected for one or more of the reasons in paragraph 13a, 13b, or 13c. In determining whether that presumption is overcome, entities should consider the extent to which the audience is selected based on its ability or likelihood to contribute to the entity and contrast that with the extent to which it is selected for one or more of the reasons in paragraph 13a, 13b, or 13c. For example, if the audience’s ability or likelihood to contribute is a significant factor in its selection and it has a need for the action related to the program component of the joint activity, but having that need is an insignificant factor in its selection, the presumption would not be overcome.

13. In circumstances in which the audience includes no prior donors and is not otherwise selected based on its ability or likelihood to contribute to the entity, the audience criterion is met if the audience is selected for one or more of the following reasons:

a. The audience’s need to use or reasonable potential for use of the specific action called for by the program component of the joint activity.

b. The audience’s ability to take specific action to assist the entity in meeting the goals of the program component of the joint activity.

c. The entity is required to direct the management and general component of the joint activity to the particular audience or the audience has reasonable potential for use of the management and general component.

14. The content criterion is met if the joint activity supports program or management and general functions, as follows:

a. Program. The joint activity calls for specific action by the recipient that will help accomplish the entity’s mission. If the need for and benefits of the action are not clearly evident, information describing the action and explaining the need for and benefits of the action is provided.

b. Management and general. The joint activity fulfills one or more of the entity’s management and general responsibilities through a component of the joint activity.

15. Information identifying and describing the entity, causes, or how the contributions provided will be used is considered in support of fund raising.

Allocation Methods

16. The cost allocation methodology used should be rational and systematic, it should result in an allocation of joint costs that is reasonable, and it should be applied consistently given similar facts and circumstances.

Incidental Activities

17. Some fund-raising activities conducted in conjunction with program or management and general activities are incidental to such program or management and general activities. For example, an entity may conduct a fund-raising activity by including a generic message, “Contributions to Organization X may be sent to [address]” on a small area of a message that would otherwise be considered a program or management and general activity based on its purpose, audience, and content. That fund-raising activity likely would be considered incidental to the program or management and general activity being conducted. Similarly, entities may conduct program or management and general activities in conjunction with fund-raising activities that are incidental to such fund-raising activities. For example, an entity may conduct a program activity by including a generic program message such as “Continue to pray for [a particular cause]” on a small area of a message that would otherwise be considered fund raising based on its purpose, audience, and content. That program activity would likely be considered incidental to the fund-raising activity being conducted. Similarly, an entity may conduct a management and general activity by including a brief management and general message — “We recently changed our phone number. Our new number is 123-4567″ — on a small area of a message that would otherwise be considered a program or fund-raising activity based on its pur pose, audience, and content. That management and general activity would likely be considered incidental to the program or fund-raising activity being conducted. In circumstances in which a fund-raising, program, or management and general activity is conducted in conjunction with another activity and is incidental to that other activity, and the conditions in this SOP for allocation are met, joint costs are permitted but not required to be allocated and may therefore be charged to the functional classification related to the activity that is not the inciden tal activity. However, in circumstances in which the program or management and general activities are incidental to the fund-raising activities, it is unlikely that the conditions required by this SOP to permit allocation of joint costs would be met.

Disclosures

18. Entities that allocate joint costs should disclose the following in the notes to their financial statements:

a. The types of activities for which joint costs have been incurred.

b. A statement that such costs have been allocated.

c. The total amount allocated during the period and the portion allocated to each functional expense category.

19. This SOP encourages, but does not require, that the amount of joint costs for each kind of activity be disclosed, if practi cal.

* * *

Following are some of the examples the accountants’ group provided to show how the new rules are supposed to work:

Illustration 1

Facts

E-1. Entity A’s mission is to prevent drug abuse. Entity A’s annual report states that one of its objectives in fulfilling that mission is to assist parents in preventing their children from abusing drugs.

E-2. Entity A mails informational materials to the parents of all junior-high-school students explaining the prevalence and dangers of drug abuse. The materials encourage parents to counsel children about the dangers of drug abuse and inform them about how to detect drug abuse. The mailing includes a request for contributions. Entity A conducts other activities informing the public about the dangers of drug abuse and encouraging parents to counsel their children about drug abuse that do not include requests for contributions and that are conducted in different media. Entity A’s executive director is involved in the development of the informational materials as well as the request for contributions. The executive director’s annual compensation includes a significant bonus if total annual contributions exceed a predetermined amount.

Conclusion

E-3. The purpose, audience, and content criteria are met, and the joint costs should be allo cated.

E-4. The activity calls for specific action by the recipient (encouraging parents to counsel children about the dangers of drug abuse and informing them about how to detect drug abuse) that will help accomplish the entity’s mission. Therefore, the guidance in paragraph 10 should be considered. Neither of the factors in paragraphs 10a or 10b is determinative of whether the purpose criterion is met. (Although Entity A’s executive director’s annual compensation varies based on annual contributions, the executive director’s compensation does not vary based on contributions raised for this discrete joint activity.) Therefore, other evidence, such as the indicators in paragraph 11, should be considered. The purpose criterion is met based on the other evidence, because (a) the program component of this activity calls for specific action by the recipient (encouraging parents to counsel children about the dangers of drug abuse) that will help accomplish the entity’s mission, and it otherwise conducts the program activity in this illustration without a request for contributions, and (b) performing such programs helps accomplish Entity A’s mission. (Note that had Entity A conducted the activity using the same medium on a scale that is similar to or greater than the scale on which it is conducted with the request for contributions, the purpose criterion would have been met under paragraph 10b.

E-5. The audience criterion is met because the audience (parents of junior-high-school students) is selected based on its need to use or reasonable potential for use of the action called for by the program component.

E-6. The content criterion is met because the activity calls for specific action by the recipient (encouraging parents to counsel children about the dangers of drug abuse and informing them about how to detect drug abuse) that will help accomplish the entity’s mission (assisting parents in preventing their children from abusing drugs), and it explains the need for and benefits of the action (the prevalence and dangers of drug abuse).

Illustration 2

Facts

E-7. Entity B’s mission is to reduce the incidence of illness from ABC disease, which afflicts a broad segment of the population. One of Entity B’s objectives in fulfilling that mission is to inform the public about the effects and early warning signs of the disease and specific action that should be taken to prevent the disease.

E-8. Entity B maintains a list of its prior donors and sends them donor renewal mailings. The mailings include messages about the effects and early warning signs of the disease and specific action that should be taken to prevent it. That information is also sent to a similar-sized audience but without the request for contributions. Also, Entity B believes that recent donors are more likely to contribute than non-donors or donors who have not contributed recently. Prior donors are deleted from the mailing list if they have not contributed to Entity B recently, and new donors are added to the list. There is no evidence of a correlation between recent contributions and participation in the program component of the activity. Also, the prior donors’ need to use or reasonable potential for use of the messages about the effects and early warning signs of the disease and specific action that should be taken to prevent it is an insignificant factor in their selection.

Conclusion

E-9. The purpose and content criteria are met. The audience criterion is not met. All costs, including those that might otherwise be considered program or management and general costs if they had been incurred in a different activity, should be charged to fund raising.

E-10. The activity calls for specific action by the recipient (action that should be taken to prevent ABC disease) that will help accomplish the entity’s mission. Therefore, the guidance in paragraph 10 should be considered. The purpose criterion is met because (a) the program component of the activity calls for specific action by the recipient that will help accomplish the entity’s mission (to reduce the incidence of illness from the disease), and (b) the program is also conducted using the same medium on a scale that is similar to or greater than the scale on which it is conducted with the request for contributions (a similar mailing is done without the request for contributions, to a similar-sized audience).

E-11. The audience criterion is not met. The rebuttable presumption that the audience criterion is not met because the audience includes prior donors is not overcome in this illustration. Although the audience has a need to use or reasonable potential for use of the program component, that was an insignificant factor in its selec tion.

E-12. The content criterion is met because the activity calls for specific action by the recipient (actions to prevent ABC disease) that will help accomplish the entity’s mission (to reduce the incidence of ABC disease), and it explains the need for and benefits of the action (to prevent ABC disease).

Illustration 6

Facts

E-28. Entity F’s mission is to protect the environment. One of Entity F’s objectives included in that mission is to take action that will increase the portion of waste recycled by the public.

E-29. Entity F conducts a door-to-door canvass of a community that recycles a low portion of its waste. The purpose of the activity is to help increase recycling by educating the community about environmental problems created by not recycling, and to raise contributions. Based on the information communicated by the canvassers, the need for and benefits of the action are clearly evident. The ability or likelihood of the residents to contribute is not a basis for communities selected, and all neighborhoods in the geographic area are covered if their recycling falls below a predetermined rate. The canvassers are selected from individuals who are well-informed about the organization’s environmental concerns and programs and who previously participated as volunteers in program activities such as answering environmental questions directed to the organization and developing program activities designed to influence legislators to take actions addressing those concerns. The canvassers have not previously participated in fund-raising activities.

Conclusion

E-30. The purpose, audience, and content criteria are met, and the joint costs should be allocated.

E-31. The activity calls for specific action by the recipient (implicitly — to help increase recycling) that will help accomplish the entity’s mission. Therefore, the guidance in paragraph 10 should be considered. Neither of the factors in paragraph 10a or 10b is determinative of whether the purpose criterion is met. Therefore, other evidence, such as the indicators in paragraph 11, should be considered. The purpose criterion is met based on the other evidence, because (a) the qualifications and duties of the personnel performing the activity indicate that it is a program activity (the canvassers are selected from individuals who are well-informed about the organization’s environmental concerns and programs and who previously participated as volunteers in program activities such as answering environmental questions directed to the organization and developing program activities designed to influence legislators to take actions addressing those concerns), and (b) performing such programs helps accomplish Entity F’s mission (to protect the environment).

E-32. The audience criterion is met because the audience (neighborhoods whose recycling falls below a predetermined rate) is selected based on its need to use or reasonable potential for use of the action called for by the program component.

E-33. The content criterion is met because the activity calls for specific action by the recipient (implicitly — to help increase recycling) that will help accomplish the entity’s mission (to protect the environment), and the need for and benefits of the action are clearly evident (increased recycling will help alleviate environmental problems).

Illustration 11

Facts

E-57. Entity K is an NPO [non-profit organization]. In accordance with internal management memoranda documenting its policies requiring it to comply with Internal Revenue Service (IRS) regulations, it mails prior donors who have made quid pro quo payments in excess of $75 documentation required by the IRS. The documentation is included on a perforated piece of paper. The information above the perforation line pertains to the documentation required by the IRS. The information below the perforation line includes a request for contributions and may be used as a donor reply card.

Conclusion

E-58. The purpose, audience, and content criteria are met, and the joint costs should be allocated. (Note that the costs of the information below the perforation line are identifiable with fund raising and therefore should be charged to fund raising.)

E-59. The activity has elements of management and general functions. Therefore, no call for specific action is required. Neither of the factors in paragraphs 10a or 10b is determinative of whether the purpose criterion is met. Therefore, other evidence, such as the indicators in paragraph 11, should be considered. The purpose criteri on is met based on the other evidence, because internal management memoranda indicate that the purpose of the activity is to fulfill one of Entity K’s management and general responsibilities.

E-60. The audience criterion is met because the entity is required to direct the management and general component of the activity to the particular audience. Although the activity is directed at those who have previously contributed, the audience was selected based on its need for the documentation.

E-61. The content criterion is met because the activity (sending documentation required by the IRS) fulfills one of the entity’s man agement and general responsibilities (complying with IRS regulations).

Illustration 12

Facts

E-62. Entity L is an animal-rights organization. It mails a package of material to individuals included in lists rented from various environmental and other organizations that support causes that Entity L believes are congruent with its own. In addition to donor response cards and return envelopes, the package includes (a) materials urging recipients to contact their legislators and urge the legislators to support legislation to protect those rights, and (b) postcards addressed to legislators urging support for legislation restricting the use of animal testing for cosmetic products. The mail campaign is part of an overall strategy that includes magazine advertisements and the distribution of similar materials at various community events, some of which are un dertaken without fund-raising appeals. The advertising and community events reach audiences similar in size and demographics to the audience reached by the mailing.

Conclusion

E-63. The purpose, audience, and content criteria are met, and the joint costs should be allo cated.

E-64. The activity calls for specific action by the recipient (mailing postcards to legislators urging support for legislation restricting the use of animal testing for cosmetic products) that will help accomplish the entity’s mission. Therefore, the guidance in paragraph 10 should be considered. Neither of the factors in paragraphs 10a or 10b is determinative of whether the purpose criterion is met. Therefore, other evidence, such as the indicators in paragraph 11, should be considered. The purpose criterion is met based on the other evidence, because (a) the program component of this activity calls for specific action by the recipient that will help accomplish the entity’s mission, and it otherwise conducts the program activity in this illustration with out a request for contributions, and (b) performing such programs helps accomplish Entity L’s mission.

E-65. The audience criterion is met because the audience (individuals included in lists rented from various environmental and other organizations that support causes that Entity L believes are congruent with its own) is selected based on its ability to take action to assist the entity in meeting the goals of the program component of the activity.

E-66. The content criterion is met because the activity calls for specific action by the recipient (mailing postcards to legislators urging support for legislation restricting the use of animal testing for cosmetic products) that will help accomplish the entity’s mission (to protect animal rights), and the need for and benefits of the action are clearly evident (to protect animal rights).

Illustration 14

Facts

E-72. Entity N is a university whose mission is to educate the public (students) in various academic pursuits. Entity N’s political-science department holds a special lecture series in which prominent world leaders speak about current events. The speakers command relatively high fees and, in order to cover costs and make a modest profit, the university sets a relatively expensive fee to attend. However, the tickets are priced at the fair value of the lecture and no portion of the ticket purchase price is a contribution. Entity N advertises the lectures by sending invitations to prior attendees and to prior donors who have contributed significant amounts, and by placing advertisements in local newspapers read by the general public. At some of the lectures, including the lecture being considered in this illustration, deans and other faculty members of Entity N solicit significant contributions from attendees. Other lectures in the series are conducted on a scale similar to the scale of the lecture in this illustration without requesting contributions. Entity N’s records indicate that historically 75 per cent of the attendees have attended prior lectures. Of the 75 per cent who have attended prior lectures, 15 per cent have made prior contributions to Entity N. Of the 15 per cent who have made prior contributions to Entity N, 5 per cent have made contributions in response to solicitations made at the events. (Therefore, one-half of one per cent of attendees make contributions in response to solicitations made at the events. However, those contributions are significant.) Overall, the audience’s ability or likelihood to contribute is an insignificant factor in its selection. Entity N evaluates the effectiveness of the activity based on the number of tickets sold, as well as contributions received. In performing that evaluation, Entity N places more weight on the number of tickets sold than on the contributions received.

Conclusion

E-73. The purpose, audience, and content criteria are met, and the joint costs should be allocated.

E-74. The activity calls for specific action by the recipient (attending the lecture) that will help accomplish the entity’s mission. Therefore, the guidance in paragraph 10 should be considered. The purpose criterion is met because (a) the program component of the activity calls for specific action by the recipient that will help accomplish the entity’s mission (educating the public [students] in various academic pursuits), and (b) the program is also conducted using the same medium on a scale that is similar to or greater than the scale on which it is conducted with the request for contributions (other lectures in the series are conducted on a scale similar to the scale of the lecture in this illustration without requesting contributions).

E-75. The audience criterion is met. The rebuttable presumption that the audience criterion is not met because the audience includes prior donors is overcome in this illustration because the audience (those who have shown prior interest in the lecture series, prior donors, a broad segment of the population in Entity N’s area, and those attending the lecture) is also selected for its reasonable potential for use of the program component (attending the lecture). Although the audience may make significant contributions, that was an insignificant factor in its selection.

E-76. The content criterion is met because the activity calls for specific action by the recipient (attending the lecture) that will help accomplish the entity’s mission (educating the public [students] in various academic pursuits), and the need for and benefits of the action are clearly evident (attending the lecture is a positive educational experience). (Note that the purchase of the tickets is an exchange transaction and, therefore, is not a contribution. As discussed in paragraph 7 of this SOP, costs of goods or services provided in exchange transactions that are part of joint activities, such as costs of direct donor benefits of a special event, should not be reported as fund raising.)

Illustration 15

Facts

E-77. Entity O is a university whose mission is to educate the public (students) in various academic pursuits. Entity O’s political-science department holds a special lecture series in which prominent world leaders speak about current events. Admission is priced at $250, which is above the $50 fair value of the lecture and, therefore, $200 of the admission price is a contribution. Therefore, the audience’s likelihood to contribute to the entity is a significant factor in its selection. Entity O advertises the lectures by sending invitations to prior attendees and to prior donors who have contributed significant amounts, and by placing advertisements in local newspapers read by the general public. Entity O presents similar lectures that are priced at the fair value of those lectures.

Conclusion

E-78. The purpose and content criteria are met. The audience criterion is not met. All costs, including those that might otherwise be considered program or management and general costs if they had been incurred in a different activity, except for the costs of the direct donor benefit (the lecture), should be charged to fund raising.

E-79. The activity calls for specific action by the recipient (attending the lecture) that will help accomplish the entity’s mission. Therefore, the guidance in paragraph 10 should be considered. The purpose criterion is met because (a) the program component of the activity calls for specific action by the recipient that will help accomplish the entity’s mission (educating the public [students] in various academic pursuits), and (b) the program is also conducted using the same medium on a scale that is similar to or greater than the scale on which it is conducted with the request for contributions (other lectures in the series are conducted on a scale similar to the scale of the lecture in this illustration without including a contribution in the admission price).

E-80. The audience criterion is not met. The rebuttable presumption that the audience criterion is not met because the audience is selected based on its likelihood to contribute to the entity is not overcome in this illustration. The fact that the $250 admission price includes a $200 contribution leads to the conclusion that the audience’s ability or likelihood to contribute is an overwhelmingly significant factor in its selection, whereas there is no evidence that the ex tent to which the audience is selected for its need to use or reasonable potential for use of the action called for by the program component (attending the lecture) is overwhelmingly significant.

E-81. The content criterion is met because the activity calls for specific action by the recipient (attending the lecture) that will help accomplish the entity’s mission (educating the public [students] in various academic pursuits), and the need for and benefits of the action are clearly evident (attending the lecture is a positive educational experience). (Note that the purchase of the tickets is an exchange transaction and, therefore, is not a contribution. As discussed in paragraph 7 of this SOP, costs of goods or services provided in exchange transactions that are part of joint activities, such as costs of direct donor benefits of a special event, should not be reported as fund raising.)

Illustration 17

Facts

E-88. Entity Q’s mission is to provide cultural and educational television programming to residents in its area. Entity Q owns a public-television station and holds a membership drive in which it solicits new members. The drive is conducted by station employees and consists of solicitations that are shown during long breaks between the station’s regularly scheduled programs. Entity Q’s internal management memoranda state that these drives are designed to raise contributions. Entity Q evaluates the effectiveness of the activity based on the amount of contributions received. Entity Q shows the programs on a similar scale, without the request for contributions. The audience is members of the general public who watch the programs shown during the drive. Station member benefits are given to those who contribute and consist of tokens of appreciation with a nominal value.

Conclusion

E-89. The purpose, audience, and content criteria are met, and the joint costs should be allocated. (Note that there would be few, if any, joint costs. Costs associated with the fund-raising activities, such as costs of air time, would be separately identifiable from costs of the program activities, such as licensing costs for a particular television program. Also, note that because no significant benefits or duties are associated with membership, member dues are contribu tions. Therefore, the substance of the membership-development activities is, in fact, fund rai sing.)

E-90. The activity calls for specific action by the recipient (watching the television program) that will help accomplish the entity’s mission. Therefore, the guidance in paragraph 10 should be considered. The purpose criterion is met because (a) the program component of the activity calls for specific action by the recipient that will help accomplish the entity’s mission, and (b) the program is also conducted using the same medium on a scale that is similar to or greater than the scale on which it is conducted with the request for contributions (Entity Q shows the television programs on a similar scale, without the request for contributions).

E-91. The audience criterion is met. The rebuttable presumption that the audience criterion is not met because the audience is selected based on its likelihood to contribute is overcome in this illustration because the audience (members of the general public who watch the television programs shown during the drive) is also selected for its reasonable poten tial for use of the program compo nent (watching the television programs). Although the audience may make contributions, that was an insignificant factor in its selection.

E-92. The content criterion is met because the activity calls for specific action by the recipient (watching the television programs) that will help accomplish the entity’s mission (providing cultural and educational television programming to residents in its area), and the need for and benefits of the action are clearly evident (watching the programs is a positive cultural and educational experience).