This article addresses the question of whether the expenses of nonprofit organizations in securing grant proposals are fundraising costs. Nonprofit organizations are motivated to report low costs of fundraising since watchdogs and fundraising intermediaries routinely use these costs to calculate efficiency ratios. Both Form 990 instructions and Generally Accepted Accounting Principles stipulate that when grants are contributions to the operations of a nonprofit, expenses associated with securing those grants are fundraising costs. However, a review of Forms 990 and a 2001 survey of nonprofit organizations indicates that many charities do not comply with these rules. Many charities account for these costs as program expenses rather than fundraising. [Published in the Spring 2003 issue of Nonprofit Quarterly, published by Third Sector New England, Boston MA.]
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