Should fundraising revenue be reported 'gross' or 'net'?

Summary:

'Gross' is the right answer here.

The American Institute of Certified Public Accountants (AICPA) publishes Technical Practice Aids (TPAs) to answer key questions about reporting financial information. TPA 6140.21 (issued in July 2007) deals with how the fees paid to a professional fundraiser should be handled.

(The text of the TPA is available at https://www.aicpa.org/download/acctstd/TIS6100_21_22.pdf.)

In this TPA, the AICPA considers whether an NPO should report amounts charged to the NPO by a professional fundraiser directly or net them out by reducing the reported amount of contributions?

To report the cost of the fundraiser directly, the NPO shows the full amount of the contributions received (the "gross" amount) as revenue and then reports the fee and any other costs as expenses.

A “fundraiser” in this discusiion, is an outside individual or firm that solicits funds specifically for the charity and the charity pays the fundraiser for the work of soliciting contributions.

In some circumstances, the fundraiser receives and holds all the contributions, deducts the agreed-upon fees and expenses, and then transmits the remainder to its nonprofit client. In this situation, it might seem logical to say that the nonprofit had no fundraising expenses of its own (the expense was all paid for before the nonprofit received any money). But the AICPA's TPA explains that looking at it that way is incorrect.

According to the AICPA TPA, the nonprofit must report the entire amount raised by the fundraiser as fundraising revenue, and the amount charged by the solicitor as a fundraising expense.

The money was raised in the name of the NPO. The contributors thought it would be used to support the NPO and its work. The expense of raising it is legitimately part of the costs of running the NPO. And should be reported fully.